What Is a Non-Compete Agreement?
A non-compete contract is a legally binding agreement between parties, often business partners and employees or contractors, that defines the parameters under which they can compete with one another after the formal relationship has ended. In other words, it’s a method of preventing one side from unfairly leveraging the trade secrets and proprietary information it learned while in a business relationship to create potentially damaging competition against the other side in the future. These contracts are typically included in employment contracts, but they may also be separate documents that govern the transfer of ownership in a company, for example.
Non-compete agreements have long been a source of contention , as many people see them as being in essence an unfair attempt to restrict a worker’s ability to find higher-paying jobs in the same field. This is particularly true in cases in which a worker only has a single specialty and the promise of the contract seems to be enough to force the worker to stay put at the potential risk of causing the business harm by breaking the contract.
Florida requires non-compete contracts to come with a "reasonableness" provision. This means that a non-compete contract must state the interest the business is trying to protect, clearly define the restrictions and must be reasonably limited in terms of its duration (typically two years) and the geographic area in which it applies.
Even if an employer believes that the non-compete restrictions outlined in the contract are reasonable, they may challenge the contract if they believe it unfairly restricts their ability to work.
The Legality of Non-Compete Agreements in Florida
Florida Statutes Section 542.335 outlines the legal framework regulating non-compete contracts in Florida. This legislation states that such employment contracts are inherently reasonable and enforceable as long as they protect a "legitimate business interest". Florida law seems to view non-compete contracts through the lens of how the public may be impacted, seeing their mandatory enforcement as a boon to a state economy comprised of innovative businesses.
Because these contracts are presumed reasonable by the state, it is the burden of public employees trying to invalidate non-compete contracts in Florida to first define what the legitimate business interest is, and then outline how the non-compete contract being analyzed does not serve that interest. If that can be done, then the burden shifts to the person who drafted the non-compete contracts in Florida, or the person who will be enforcing the covenant not to compete, to demonstrate how the non-compete contract is reasonable based on these three separate criteria:
• It is no more restrictive than is necessary;
• It protects legitimate business interests; and
• It is justified by the facts of the case, meaning that it would not punish or otherwise damage an employee or third party who had done nothing to violate the non-compete contract.
Regardless of what interests the non-compete contracts in Florida are intended to protect, they can be invalidated if they do not meet the requirements outlined above. For example, limiting an employee’s capacity to work with other people can be seen as an attempt to prevent the employee from earning a living, while also lacking a tangible impact on protecting a business’s interest. There are, indeed, some limited situations in which a reasonable business interest (as the term is used under Florida law) cannot be reasonably enforced due to a lack of time, geographic space, or monetary resources.
Non-compete contracts in Florida have a maximum time limit of two years for agreements made prior to July 1st, 2011. For contracts made after this cutoff date, the maximum time limit increases to five years, provided that the employer can demonstrate that all three of the above-listed criteria are met.
The Requisites for Enforceability
In Florida, non-compete contracts are recognized under Florida Statutes §542.335 as valid and enforceable if they are no greater than reasonably necessary to protect a legitimate business interest of the employer. More specifically, Florida law identifies six legitimate business interests that are worthy of protection, including:
- (1) Trade secrets;
- (2) Confidential information that is defined as a trade secret;
- (3) Customer, patient or client lists and client relationships;
- (4) Extraordinary or specialized training;
- (5) Special time or money spent establishing customer, patient or client relationships; and
- (6) If the employee is an athlete agent, their unique or unusual service, talent or expertise.
The Florida Statutes also provide that any restraint greater than necessary to protect such interests will be considered void. Although the law does not define "greater than necessary" restraints, it is clear that both the duration and geographic areas of the non-compete restriction qualified as restraints on trade. This is because, absent these restrictions, the employer’s business could still achieve the same degree of efficiency, productivity, and profitability and the employee enjoys considerably more opportunity for personal employment and career advancement.
To determine whether the non-compete contract is reasonably necessary to achieve its intended benefits, courts will examine the interests to be protected and balanced them against the interests or rights of the defendant employee. Courts will consider the scope of the restraint as it relates to the time, territory, and type of activity sought to be prohibited, and whether the limitations are no more extensive than necessary to protect the employer’s legitimate business interests. Florida courts have found that 18 months is a reasonable time restraint for non-compete provisions.
Most Troublesome Factors and Enforcement Issues
The enforcement of non-compete contracts in Florida can often be a significant challenge. Potentially harmful enforcement problems start with the terms themselves because they are contracts governed by their plain language rather than by statutory requirements. Florida’s non-compete law is not complicated but it still tends to leave many employers scratching their heads over how to write an enforceable agreement. Beyond that, while non-compete disputes nearly always involve the arguments about their terms, certain enforcement issues arise from the process of enforcing the agreement.
For example, former employees often argue that the agreement is invalid for reasons that usually fall into three common categories. The most common argument is that the agreement is void because the employer did not have a legitimate business interest to protect. Non-compete contracts fall into a category of contracts that are special and entitled to enforcement even though they are usually found to be a restraint of trade (in other words, they are contracts in restraint of trade) because they involve the solicitation of confidential information, customer relationships, or employees. A general non-compete that restricts someone from working for a competitor anywhere is generally not going to be valid because it will arguably be overly broad and more of a restraint of trade than a trade secret agreement. A properly drafted non-compete should restrict the former employee from competing wherever their confidential information or customer relationships are known. For example, a business that has customers, vendors, business partners, and confidential information across the Southeastern United States should not restrict its former employees from competing only in Miami. There is a decent chance that the confidential information applies beyond Miami. Limiting the non-compete range will therefore leave the employer vulnerable to a challenge as to the validity of their business interest to enforce the contract.
The second common argument against the enforcement of a non-compete agreement is that it is overly broad and hampering one’s livelihood. Employees argue that preventing them from working in the field unless it is in a very specific geographical area is overly burdensome and unfair under the circumstances. Courts typically consider the scope of what the party is seeking to prevent and weigh it against the damages that party will incur if they are prevented from competing. Along those lines, former employees also sometimes argue that the restriction is too far reaching within the company. Typically, if the company has multiple locations or works in multiple regions, it is better to limit the scope of the non-compete to reflect only the region or lines of business involved. Courts will often view this as overly burdensome and reject the non-compete altogether if the company is overly restrictive in its non-compete, even if otherwise the terms of the agreement would likely be valid.
These cases also highlight the third area where enforcement issues arise when the former employee is working for a competitor and the court must decide whether or not the former employer may obtain injunctive relief. Many trial courts will deny a motion for injunctive relief even if they find the agreement valid on the grounds that it does not seem to be competitive in the geographic area at all. While this may seem overly broad to simply rule that a court must always rule in favor of the moving party, these situations arise when the court interprets the non-compete as too restrictive. The standard for grant of injunctive relief and whether or not damages will be sufficient to resolve the situation is often based on the harm to both parties and how difficult it would be to set limits on the injunction to allow both parties to operate without further harm to either party. Notably, even if the issue is not whether the injunction should be granted, the parties can agree to limit the scope. Without any agreed order, however, the parties will be bound by the order of the court and its obligation to provide the relief that it deems just. It is not unusual for the scope of any injunction containing an error that could not possibly be the intent of the parties.
In any event, these situations reveal that non-competes can be difficult to enforce even under ideal circumstances. Florida courts will take a very hands-off approach and lawyers from both sides of a non-compete dispute will spend as much time negotiating the agreement as litigating its terms. The best situation is when an employer has refined their non-compete agreements with experienced the help of a non-compete lawyer and then continues to work with that same attorney during the process of negotiation and any litigation.
How to Draft a Compliant Non-Compete Agreement in Florida
Drafting a Compliant Non-Compete in Florida requires care and attention to detail. Once a contract is signed, there is no going back. It is much more difficult to challenge (or reform) an overly broad contract than it is to carefully draft a narrowly-tailored contract in the first place.
To pass muster under Florida law, a Non-Compete Contract must include, at minimum, a specific geographic restriction. The contract must also include:
• Specificity in terms of time period;
• A legitimate business interest to protect; and
• A legitimate, non-illusory business purpose behind the restriction.
With these best practices in mind, companies should begin drafting the non-compete contract with the end user in mind. For example, jobs that require employees to get access to a company’s trade secrets should include a broader non-compete clause than those jobs with little or no access to the employer’s confidential information. So, when drafting a Non-Compete Contract meant to restrict an employee’s professional activities after leaving the employment of the company, it is not enough to simply say , "Employee agrees that he/she will not work for a competing company in the Jacksonville area for a period of one year after leaving our employment." This Mineola, Florida non-compete contract requiring twelve (12) months of non-competition does not specify a legitimate business purpose to the restrictive covenant. Employers should avoid, at all costs, making overly broad non-compete contracts. If possible, do not offer a restrictive covenant if there is no trade secrets or confidential information to protect.
In order to remain enforceable, employers in Florida must also consider the specific industry in which the employee will be working at the time of his/her departure. For example, if the position is one that would allow the employee to work anywhere in the state of Florida, and then for a foreign company or in a foreign state: Should there be a non-compete covenant at all? An overly broad non-compete can and often does backfire, rendering the entire contract void. In other words, far-reaching and overly intrusive non-compete contracts can make courts question an employer’s motives. Sound wins.
Alternatives to Non-Compete Agreements
While non-compete agreements have been commonly used in Florida for many years, there are a number of alternatives that can be implemented in particular situations that may allow an employer to adequately protect its legitimate business interests without having to rely on a non-compete agreement. Some of the alternatives are:
First, the implementation of a conventional non-solicitation agreement, which prohibits employees from soliciting existing customers or employees of the employer for a period of time following termination. These types of agreements can be reasonable in the scope of activities prohibited, and in duration. The employer must, of course, have a legitimate business interest in prohibiting the solicitation of customers or employees of the employer. This type of enforcement was affirmed by the First District Court of Appeal in 1994, but has not been extensively litigated since.
Second, another alternative is the implementation of a conventional confidentiality agreement. The confidentiality agreement can protect against the unauthorized disclosure of confidential information by the employee while employed, and upon what is commonly referred to as "the end of employment," which has been interpreted by some courts to mean the last day of employment, and in other decisions has been interpreted by some courts to mean the date of the voluntary or involuntary separation of employment. The confidentiality agreement must typically be limited to confidential information that is proprietary to the business and generally not ascertainable by the public. Some courts have not required that the confidential information actually be secret or unknown to the public under certain circumstances. Significantly, a confidentiality agreement imposes a duty on the employee to maintain secrecy, but it does not affirmatively prohibit the former employee from using the information in competition with the employer. For this reason, a confidentiality agreement is typically much easier to enforce than a conventional non-compete agreement. It is important to note, however, that when the confidential information sought to be protected is tantamount to the good will of the business (e.g., a customer list), an overbroad confidentiality agreement would likely be unenforceable against the former employee as a matter of Florida public policy.
Recent Case Law and Trends
In recent years, it has become clear that the courts across Florida have been tightening the screws on non-compete contracts. The Florida Legislature has tweaked the law on non-compete contracts on several occasions. The decision in the Keller case has had a significant impact on how the courts view term and perpetual non-compete contracts in Florida. In addition, the 2014 legislative changes have forced courts to evaluate the sufficient purpose of non-compete contracts. A lack of proper justification for a non-compete contract will result in a court invalidating all or a portion of a non-compete contract. This means that the courts are looking more closely at the purpose of the non-compete contract at issue.
In 2017, the Florida State Legislature passed revisions to Florida Statutes Section 542.335, which were aimed at making it more difficult for companies to enforce non-compete agreements, in particular those with terms longer than six months. These changes have had limited impact, but they have caused the courts to scrutinize the reasonableness of the duration of the non-compete contract. Only time will tell how the courts apply these changes.
There is a great trend away from contract provisions that impact only former employees. For instance, there have been a number of recent cases that have voided a non-compete contract provision prohibiting solicitation of customers and prospective customers. When companies insert these in a non-compete contract, the courts regularly find such language contrary to Florida law especially when there is no legitimate business interest.
Consult an Attorney
Regardless of the vocation or occupation involved, non-compete contracts can have a significant impact on whether a business continues to have a physical presence in Florida and on the income and career trajectory of employees after they leave a company. For these reasons, it is critical that employment agreements be written to provide the strongest protection possible while still ensuring that the terms and conditions required by Florida law are satisfied.
Individuals and businesses that are negotiating, reviewing or entering into non-compete contracts should always have an experienced Orlando non-compete agreement attorney review the terms of any proposed or signed employment contracts. Contract disputes related to non-compete agreements are very common , as are attempts to enforce these contracts. The world of employment and business law is ever-changing, and mistakes and oversights are all too common and can have a significant negative impact on the future of a company or on the career of an employee.
By working with a skilled lawyer, it is possible to ensure that your rights and interests are carefully protected if a dispute ever arises over a non-compete agreement. Legal representation from a team of knowledgeable attorneys can mean the difference between a costly and lengthy court battle and a quick and reasonable settlement on terms that are favorable to you.