Over the course of 2017 I have had multiple cases involving non-compete agreements. In some instances, I was retained by the employer and in others by the employee but in all instances the same basic analysis applies:
Under Florida law, non-compete agreements may be enforced by the employer so long as they are reasonable with regard to time and geographical area, and protect a legitimate business interest of the employer as defined by Florida statute. Generally, restrictions of up to two years and covering areas where the employer actually does business will be considered reasonable by a court. Even where the restrictions in the agreement are found to be unreasonably broad, the court has the authority to modify the agreement so as to impose more reasonable restrictions. Usually, enforcement of a non-compete will come down to whether the employer has a statutorily defined, legitimate business interest that can be protected, and if so, whether the employee or former employee has used that business interest in such a way as to result in unfair competition.
So, what does that all mean? First and foremost, non-compete agreements and any other restraint on trade are generally disfavored under the law. With that basic premise the Legislature has created Florida Statue Section 542.335 which is a specific exception to permit willing parties to enter into agreements that restrain trade under certain specific circumstances.
As mentioned above these agreements need to be reasonable as to duration and geographical area. The latter has presented a bit more of a problem in recent years given the unlimited boundaries of many companies especially in the sales industry where ironically non-compete agreements are the most prevalent. Generally speaking the ability to simply state in an agreement the time and geographical restrictions is the east part. Where the rubber meets the proverbial road is actually defining the legitimate business interest. Of course, every employer is of the strong opinion that every aspect of its business is a “legitimate business interest” but the law defines such an interest very differently. Under the law, the following are considered legitimate:
- Business interests are defined in the statute and include, but are not limited to, trade secrets; valuable or confidential information other than established trade secrets;
- Relationships with existing or specific prospective customers;
- Customer goodwill associated with an ongoing practice or name, geographic area, or particular trade; and
- Extraordinary or specialized training of employees
Now What? But Darren he signed a non-compete how can he open up across the street… Or something like that is said very often. Well the answer is “it depends”! Non-compete agreements are creatures of Statute (law) and interpreted by Judges using a history of prior decisions that never quite fit the actual factual circumstance in any given case. Therefore, it’s virtually impossible to predict the enforcement of any non-compete agreement but there are some items to look for in existing agreements that may trigger an employee or an employer to look a little deeper and seek legal counsel:
- Non-compete agreements need to be in writing;
- They need to be signed and have some independent consideration (value) separate from simple employment compensation;
- Obviously, duration and geographical limitations need to be reasonable; and
- The Legitimate Business Interest must be defined and legally recognized;
In sum, non-compete agreements are a valuable tool that can promote investment in and transparency between employers and employees. They can be used to negotiate higher compensation for employees and to secure business and trade secrets. Unfortunately, these agreements can also be used for kindling during the holidays on a cold winter night. That being said, review your non-compete agreements, review your business plans to evaluate if a non-compete agreement should be in place and do your homework to make sure these agreements are fair to all parties involved.