Employee Non-compete Agreements in Florida
One of the greatest indignities a business suffers is when an employee leaves, after being trained and introduced to your customers, to start their own business. You, their employer, have ended up subsidizing the education and customer base of someone who will now be your competitor. Ouch!
To answer this problem, you should require your executive, management and sales personnel to sign non-competition agreements. These agreements prohibit an employee from going into competition against a former employer, either by going to work for, or setting up, a competing business. These non-competition agreements in Florida will specify a time frame, usually between 6 months and 2 years, and a geographic area, to which they apply.
Criteria for Non-compete Agreements
Fla. Stat. 542.335 only allows non-compete agreements if they serve to protect an employer’s “legitimate business interest” such as trade secrets, confidential information, substantial client relationships or specialized training given to an employee. That is why your executive, management and sales personnel should sign non-competes, but non-competes signed by more ordinary workers, such as janitors, secretaries, mechanics without special training, and line workers, will not be enforceable by employers.
Non-competition agreements must be reasonable in time and geographic scope. For ordinary non-competes, Fla. Stat. 542.335(1)(d) provides that a court will presume 6 months or less as reasonable, and more than two years as unreasonable. For geographic scope, “reasonable” will usually mean the areas in which the employer does most of its business. In Florida, if a non-compete is unreasonable in time or geographic scope, it will still be enforceable subject to the court cutting back the time or area to which it applies. Employers should not just make their non-compete over broad and then rely on the court limiting them to a reasonable application because this might make a difference in who the lawsuit’s prevailing party is, which dictates which party reimburses the other for attorney’s fees.
Effective enforcement of non-competes comes from temporary injunctions which are issued on a rush basis, soon after the filing of a lawsuit against a breaching employee. On most lawsuits, no relief is granted until the trial, which is often 9-12 months, or more, from filing of the lawsuit. Temporary injunctions avoid this timing problem, but temporary injunctions are only issued if the employer shows a clear likelihood that the employer will prevail on the merits, and posts a bond to compensate the employee if it turns out the employee wins at the trial.
To preserve the enforceability of a non-compete agreement, employers must be careful to live up to all the obligations owed to the departing employee. For instance, the employer should not withhold any salary or commissions, regardless of what trouble the employee made upon leaving. This is because the Florida courts have held that a party (i.e. the employer) in seeking an injunction must have fully performed its part of the contract or arrangement as a precondition to obtaining an injunction. Put another way, if both parties have behaved wrongly, a court will not single out one of the parties to punish with an injunction.
If a temporary injunction is issued by the court against an ex-employee, and the ex-employee violates the injunction, the ex-employee will be in contempt of court subject to sanctions which may even include jail. For the enforcement of non-competition agreements, neither the statute nor reported appellate case law distinguishes between employees who quit and employees who are fired. However, trial judges are human, and it can be expected that it will be harder to enforce a non-compete against an employee who has been unjustifiably fired. Non-compete agreements are enforceable against independent contractors and agents as well as employees, as long as the same “legitimate business interest” test is met.
What Your Non-compete Agreement Should Contain
Non-competition agreements should be assignable, so that if an employer sells the business, the benefits of the non-competition agreement will inure to the new owner. A potential buyer of a company will be reluctant to buy if the important employees can go off on their own, starting the same business themselves. Some business organizations are made up of a family of corporations, each perhaps owning a different project or performing a different function. For businesses set up in that way, the non-competition agreements should name all the different corporations in the business family as beneficiaries of the non-compete agreement.
A basic rule of contract law is that a contract is not enforceable against a party unless that party received consideration (i.e. something of value) for the contract. Non-compete agreements signed by an employee after the start of employment need to specifically say that the employee is receiving consideration in the form of continued employment (with care taken not to infer anything other than continued employment at will). Florida courts have stated that this is sufficient to preclude the defense of an employee claiming no consideration for a non-compete agreement signed after the start of his employment.
Non-competes When Purchasing a Business
When purchasing a business, it is crucial that the buyer obtain non-compete agreements from the people selling the business. Good will and name recognition are often the most significant items in the purchase of the business. Without a non-compete agreement, the seller may start a new business in direct competition with the old one and take the loyalty of the new customers to the new business. Instead of the 6 month - 2 year parameter time frame for a non-compete with regular employees, Fla. Stat. 542.335(1)(d) provides that in a business sale, a non-compete agreement for 3 years or less is presumed reasonable, and if more than 7 years, presumed unreasonable. This longer time for a non-compete in the context of a business sale shows the strong legislative recognition of the need to protect the good will of a business from its former owners.
Business owners should review the subject of non-competes with their attorney. The attorneys at Tucker & Tighe, P.A. are available for consultation by employers who have questions or who wish to implement non-competition agreements.
Important Note: This article is for general information only and is not intended to give any specific legal advice or opinion which should be sought from an attorney. The facts of any particular situation need to be examined before deciding on a legal course of action.
Copyright Â© 2001 by Tucker Tighe P.A. All rights reserved.