Do Non-Compete Agreements have Legal Force in Florida?
A Guide to Noncompetes
A non-compete agreement is a contract between an employer and employee that restricts the employee from competing with the employer after the employment relationship has been terminated or ended in some manner. The intent of a non-compete agreement is typically to prevent a former employee from using information learned during the employment relationship to compete directly with the employer in a manner that might be harmful to the employer’s business.
Non-compete agreements are generally part of the employment contract itself. Florida courts presume that , under normal circumstances, an employee receives something in return for executing a non-compete agreement. For example, when an employee is hired in exchange for executing the non-compete agreement, the employee is receiving ongoing employment. An employee receiving raises, promotions, or other employment benefits during an employment relationship may also signify that the employee is receiving something in exchange for executing the agreement.
Applicable Law in Florida
Florida is one of only a handful of states that still permit the enforcement of covenants not to compete to any significant degree. Under Florida law, non-compete covenants that restrain workers from working for a competitor are governed by Chapter 542.335, Florida Statutes (1996).
The standards laid out in Section 542.335 focus on the length and territory being restricted, and whether the activity restricted is a legitimate "business interest", which is defined in Section 542-335.
The statute, however, does not give the business seeking enforcement a blank check. The Fourth District Court of Appeal explained in Haire v. Lee County (2005) that compliance with the statute is essentially a "threshold matter" that a court must consider before looking at whether there is a legitimate business interest.
The language of the statute shows that a court’s job after determining a covenant protects a legitimate interest is to look at whether the restraint is "reasonably necessary" to protect it.
"Section 542.335, like Rhode Island’s ‘limiting-requirement,’ gives courts the authority to decide whether a restrictive covenant’s restraint is reasonably necessary to protect a legitimate business interest," the Fourth District ruled. "In doing so, courts should consider the facts of the case before them and enforce only those restrictions which, on balance, are no more than is reasonably necessary for the plaintiff to protect its business interest."
Another important feature not immediately obvious from the language of the statute is that Florida courts consider "time period of the restriction" and "geographical area of the restriction" together when determining whether the covenant is "reasonably necessary." In other words, the longer the time period, the more limited the geographic area may be without being unreasonable.
To be enforceable under Florida law, a non-compete agreement typically must state:
Florida courts will invalidate a non-compete agreement that imposes restrictions on an employee’s ability to compete or work for a competitor that are not reasonable as to time and territory. The statute, which codifies the common law of non-compete covenants, authorizes the courts "to refuse to enforce any restrictive covenant in whole or in part if, after a taking into account all proper factors, the trial court determines that the requested relief is not necessary to protect the legitimate business interests of the person seeking enforcement."
In determining whether the restriction is reasonably necessary, courts look at the time period in combination with the territorial restriction, the scope of activity restricted, and the legitimate competition of which the employer is being protected. Courts will also consider whether the employer is seeking to prevent competition within a geographic region in which the employee has never worked. In such instances, courts may order the offending provisions stricken from the contract rather than void the entire agreement.
Considerations in Enforceability
Courts in Florida consider several factors when determining whether a non-compete agreement is enforceable. First, the geographic scope of the non-compete must correspond to the territory where the employer’s business is located or the area where the employee worked. A geographic restriction that is too broad than necessary to protect the employer’s legitimate business interests is likely to be viewed as overreaching by a court and void.
Second, the duration of the geographic restriction should not exceed six months after the employment ends. Noncompete restrictions for longer durations can be viewed with skepticism in Florida.
Next, non-compete restrictions should be limited to protect trade secrets or confidential information that the employer was unable to protect through other means. If the subject of the non-compete restriction is information, client list or trade secret, the restriction needs to be site-specific. The subject of the non-compete restriction should only encompass information that is located at that site.
Finally, the non-compete restriction should not prevent the employee from using his or her skills and expertise in the neighborhood collection or community. So, for instance, geographic restriction on a non-compete that prevents a person in a specialized field from selling his or her services to the public because they e-mail the names of potential customers in the region would probably be void.
New Illustrative Cases
As stated above, non-compete agreements are regulated by Florida Statute §542.335 which contains what is known as a "safe harbor" provision allowing for non-competes if they are limited to less than two years, limited to specific geographical areas or specific clients, do not exceed explicit time limits, and are necessary to protect the legitimate business interests of the employer. (These "legitimate business interests" are now detailed in the statute itself.) A number of recent Florida cases have considered when a non-compete may be found to be in violation of Florida Statute §542.335.
In a case decided in 2005, Cambridge Christian School v. Hunter entered into an employment contract with a teacher which included a two-year non-compete provision and a $10,000 liquidated damages clause. When the employed was terminated for violating the Church’s religious beliefs the constraints of §542.335 came into play. The court found an absence of evidence that the school suffered any actual loss as a result of the alleged breach because they were hiring and performing properly. Therefore, the non-compete clause was invalidated.
In another case, Panther Westwinds, Inc. v. Fedders North America, Inc., in 1991 the Second District held that a broader area of limitations for a non-compete was reasonable and should have been enforced. Here the non-compete had prohibited a former employee from operating a business in the U.S., Canada, Guam, the Virgin Islands, the Bahamas, and various areas in Mexico. The court concluded here that the restrictions were reasonable because they protected the company’s business fortification and reputation through the company’s trademark, "Compro," which was recognized throughout the entire region.
In a 2003 case, Tri-County Water v. Tiencken the First District Court found that a defendant was properly restrained from competing within three counties of the employer’s plant, which was located in Gadsden County but supplied water to customers in Leon and Wakulla counties. The arguments for the defendant were the three-county restriction imposed unreasonable hardship on her because she and her spouse owned and operated a pest control company. The court held that because the area was necessary to protect the business from invasion by large companies that could potentially take customers from the smaller business.
General Fallacies
Employee: "I don’t really have customers at my job, so why do I have a non-compete?"
In fact, having customers is not a requirement for a non-compete to be enforced against you. Non-competes can also be enforced against you if you had access to confidential information or trade secrets for your employer. And even if you didn’t have access to confidential information or trade secrets, a non-compete will still be enforced against you if your job duties were sufficiently specialized.
Employer: "I have a written agreement that the employee signed, so I don’t need to worry about it."
You need to worry about it! Just because your employee signed a non-compete does not mean that it will be free from attack. Many non-competes are unenforceable because they cover too great of a geographical area, because the parties did not sign them in consideration of anything (that is, the employer did not promise anything to the employee in exchange for signing), because the restraint is not the least restrictive on the employee’s ability to earn a livelihood as possible, etc. If you are an employer and received a signed non-compete from an employee , you should consider having it reviewed by a qualified attorney.
Employee: "My boss told me that he wouldn’t hire me if I didn’t sign the non-compete my new employer wants me to sign."
Your employer may not be making idle threats here. Florida law allows non-competes to be enforced even if the employee had no customer contacts and the non-compete would prevent the employee from working at all. An example is a business selling printing supplies. Employees working in fulfillment do not have any direct contact with customers, but the employer’s product line is highly proprietary, and the employee’s working for another company could result in their use of the employer’s proprietary techniques and processes.
Employer: "I have an unlimited non-compete for all employees in my company."
The Florida courts have found that including an unlimited non-compete with regard to time or geographic scope is insufficient and likely unenforceable. Courts are today more concerned about each individual non-compete, rather than whether the employer has a valid business interest to protect.
Legal Guidance for Employers and Employees
The effectiveness of a non-compete agreement largely depends on whether or not it is enforceable. For employers, ensure the agreement includes reasonable geographic and temporal restrictions. Conduct and keep well-documented market research that shows the value of your business’s legitimate business interests to guards against anti-competitive practices. Avoid entering into an employment contract with an employee if you do not have a legitimate business interest that you must protect. If possible, draft a well-customized non-compete agreement so that it is truly unique to the employee in question. Consider the employee currently has access to trade secrets, highly confidential information, and other proprietary information as part of his or her job. Consider using a non-disclosure agreement if a non-compete agreement is not appropriate and preferable.
For employees, understand the terms of the non-compete agreement before signing. Contractual non-competes may not be binding in court, especially in Florida. Know whether or not it will be impractical or overly burdensome to uphold the conditions of the contract. Pay particular attention if you legally only perform business work within your county, state, or standard geographic boundary; these borders may mean entire states or regions cannot enforce the contract after your employment ends. Do not wait until you are looking for a new job to read the contract, as you should be aware of its terms well before leaving or quitting your employment. Seek an employment attorney when it comes to contract terms and contract negotiation and screening for red flags.
Non-Compete Alternatives
There are a number of alternatives to the non-compete agreement outside the more traditional restrictive covenant. For example, where your employment is governed by a contract otherwise, you can include a contract term which is less restrictive than a non-compete agreement. For instance, you could have a Communications & Confidentiality Clause, or a solicitation clause. For sales-type employees who do not have access to customer lists, a non-poaching clause may be appropriate. Likewise, if you are in connection with a sale or merger of a business, a non-solicitation agreement may be appropriate . In those instances, it may be appropriate for you to impose a post-termination restriction on the selling party separating them from competing with you in a specified area or territory.
There are also a wide variety of mechanisms in the form of clauses which you can use in lieu of a non-compete or non-solicitation agreement to protect your business. These include:
- Restrictive notice provisions.
- Non-recruitment of personnel or no raiding clauses.
- Arrowhead clauses.
- Elegation or delegation clauses.
- Limitations on the solicitation of certain individuals or post-termination restrictions.
- Listing of competitive products.