Overview of Non-Compete Agreements
From a broad perspective, a non-compete agreement is essentially a contract in which an employee agrees that they will refrain from working for their employer’s competitors (or starting a competing business) after they leave employment. They are most frequently used by employers to prevent former employees from taking their clients or customers away from them when they leave for a competitor or start their own business.
To be enforceable in Florida, a non-compete agreement must be "reasonable." This means that the agreement cannot be overly broad, in that it cannot prevent the employee from working for any company in the country, or prevent that employee from working in any area of services . A "general" non-compete, however, that just prevents an employee from working for the employer’s competitor, is usually enforceable. Also, the employer must have a legitimate business interest(s) at stake, such as a protectable client or customer relationship, trade secret or other confidential and proprietary business information.
While they can also be used with sales representatives, they are most commonly used with high-level employees who "shape" or "inform" the company’s services – such as lawyers, accountants, nurses, or other professionals.
Florida’s Distinct Approach
Florida is unique in that it has codified the requirements for an enforceable non-compete in the Florida Statutes. Florida Statutes § 542.335 lays out the requirements that must be met in order to be enforceable. The Florida Statutes first lists the elements that a legally enforceable restrictive covenant must be designed to protect which include: A legally enforceable non-competition agreement must also be reasonable in time and geographic scope. Florida Statutes § 542.335(1)(d) lists that in determining reasonableness, a court must look to the nature of the business, its operations and the nature of the conduct prohibited by the restrictive covenant. Florida Statutes § 542.335(1)(e) details what factors a court will consider when determining if the time and geographic scope is lawful. For example, in determining if the time is reasonable a court will consider the nature of the business, the relationship between the parties and whether there is a special or extraordinary circumstance that warrants a longer duration and what is needed to protect the legitimate business interest as required Florida Statutes § 542.335(1)(e)(1). When considering what a reasonable geographic scope is courts will look at the demand for services in the industry, the location of customers, and where the employees or former employees live and work Florida Statutes § 542.335(1)(e)(2).
Prerequisites for Enforceability
In Florida, non-competes are governed by Florida Statute 542.335, which governs every non-competition agreement made after July 1, 1996, the effective date of the current statute. Under Section 542.335(2)(a), no non-compete shall be enforceable unless it is reasonably necessary to protect: (1) a legitimate business interest; (2) the person attempting to enforce the agreement; and (3) the public. Since the statute was amended in 2005, Florida has more clearly defined some of the "legitimate business interests" that are worthy of protection. Among those enumerated interests are "valuable confidential information that otherwise does not qualify as trade secrets." Courts have also recognized that customer and/or client goodwill can constitute protectable business interest if the employer has made an effort to build a customer relationship based on something other than just price. Non-competition agreements are also generally enforceable if they are reasonable in scope, both as to time and geography. Reasonable scope – in terms of time and geography – is determined by courts on a case-by-case basis.
Typical Issues and Defenses
The first challenge an employee faces when trying to fight a non-compete agreement is the high burden placed on them in court. This burden makes it difficult to effectively defend against the agreement when not represented by a skilled attorney. The employer can move for enforcement of the non-compete and may be awarded an injunction even though the employee does not have any legal representation. Most employees do not have a sufficient understanding of employment law necessary to combat these agreements without the assistance of a qualified attorney.
As far as defenses go, some of the most obvious situations in which an agreement may be determined to be unenforceable include instances in which:
Additionally, even if one or more contractual limitations against competition is not legally enforceable, an injunction clause may still be valid and enforceable. In short, the best way to determine a potentially effective challenge or defense to a non-compete agreement is to speak with an experienced attorney.
Effects on Employment
Non-compete agreements can have a definitive impact on whether a person is hired for a new position and how much he or she is paid. Employers may require one at any time through the employment cycle, and many do so routinely. Sometimes the agreements seek too much, which can backfire on the company and be of particular burden to the employee.
Potential economic and career implications
Non-compete agreements can impact future advancement. For example, they may prohibit an employee from working for certain competitors, even if they happen to be the best fit, and it could limit job mobility in case such a competitor has an opening. In some cases these agreements require lengthy geographic zones. For example, non-compete clauses have been enforced as far as 100 miles away from the former place of employment. The more stringent the non-compete agreement, the greater the economic impact on the career of a person who has signed one. The greater the economic impact, the likelier an injunction is to be issued to enforce a non-compete agreement. At the other end of the spectrum , non-compete agreements in Florida can be virtually meaningless. It is up to the court to rule on whether an injunction is appropriate regardless of whether the parties or the judge doesn’t consider the restrictions reasonable. Even when the terms are considered reasonable, companies can lose top talent by not making them competitive with the marketplace. If an employee is offered a pay increase to consider another position that sidelined their career, they may decide that the pay bump is not worth the risk. Alternatively, they may simply take the leap to pursue better opportunities, knowing that the non-compete agreement may not be enforceable. Or they may rely on common non-competes because it is an industry standard, but their company does not even have the resources to pursue enforcement.
Influencing hiring practices
In the end, employers are forced to factor in the issues that non-compete agreements can create when considering the hiring of new employees and making decisions about what candidate to choose for vacant positions or new promotions. Non-compete agreements can increase the costs of hiring and lead to less competitive compensation packages for top talent. Additionally, if an employee requests a better deal, it may be enough for a company to move on.
Recent Court Trends
As trends come and go in non-compete law, the legal landscape in Florida periodically alters as judges interpret statutes and seek to develop existing standards. In May 2019, the Florida Supreme Court issued an opinion in White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC. The Court resolved circuit splits regarding whether a non-compete agreement must be in reasonable form. The Court held that to be enforceable, covenants not to compete must be reasonable both in time and area as to both the individual seeking the covenant not to compete (the employer) and the public interest. Since Mederi, other courts have issued decisions consistent with the Mederi holding. For example, in August 2019, the Third District Court of Appeal held, in Aiguier v. Teeman, that a 1-year, 6-month non-compete filed with a bankruptcy court was reasonable for a former executive of a prepaid calling card company. Likewise, the Fourth District Court of Appeal held, in Nat’l Joint Health & Wellness Advisors, LLC v. Scacci, that a non-compete agreement between a holdover co-manager of a limited liability company and new owners following a corporate buyout was enforceable at the time it was entered into even though the employer later amended its non-compete policy. Importantly, the court in Scacci held that the old valid non-compete agreement was not invalidated by subsequent changes to the non-compete policy. These courts continue to apply the two-prong analysis set forth in Mederi and appear to be strong proponents of upholding them.
Advice for Employers and Employees
Employers should include a forum selection clause in their non-competes, if only so they know the judge considering the enforceability of their clause is sitting in their back yard. This will drastically reduce the effort required to prove that a Florida court has personal jurisdiction over the former employee.
In addition , employers should always consult an experienced employment lawyer or business lawyer when drafting any non-compete agreement. Too much it at stake.
Employees who are presented with a non-compete agreement should avoid signing until they have fully considered the consequences and consulted an attorney experienced in drafting and litigating non-compete agreements. Employees should also try to negotiate certain provisions that may not be in their best interest to agree to, such as:
Those efforts could potentially minimize the effects of an agreement on their lives if they find themselves subject to enforcement proceedings later on.