Month: June 2014

FLORIDA LAW ON NON-COMPETITION COVENANTS: REWRITING CONTRACTUAL TERMS

Florida statutes on non-competition covenants allow courts to modify overbroad non-competition covenants.  For example, a non-competition covenant restricting an employee from competing against the employer in every county in Florida is likely overbroad if the employer conducts business only in Broward County.  Florida statutes, however, allow the court to modify such overbroad non-competition covenants and grant “reasonably necessary” relief, i.e., modify the covenant to apply only to Broward County.

Under Florida contract law, however, courts generally will not rewrite the terms of a contract.  Although Florida statutory law allows courts to modify overbroad non-competition covenants, Florida courts have otherwise refrained from rewriting non-competition covenants.

In Advantage Digital Sys. v. Digital Imaging Servs., 870 So. 2d 111 (Fla. 2d DCA 2003), two employees were bound by non-competition covenants that restricted them from “soliciting” the employer’s customers.  The trial court found the non-competition covenants enforceable and ordered that the employees were prohibited from “having any contact, whatsoever, with any customers of [the employer].”  Advantage Digital Sys., 870 So. 2d at 114-15.  On appeal, the appellate court disagreed with the trial court’s order.  The appellate court held that the trial court’s order went “far beyond prohibiting solicitation” and “essentially and impermissibly rewrites the parties’ agreements by disallowing any ‘contact’ with [the employer’s] customer.  …  Because the noncompetition agreements prohibit only solicitation, that is the only activity that can be the subject” of the court’s order.  Advantage Digital Sys., 870 So. 2d at 115.

More recently, in Heiderich v. Fla. Equine Veterinary Servs., 86 So. 3d 527, 530 (Fla. 5th DCA 2012), Dr. Heiderich, a veterinarian, signed a non-competition covenant with her employer, which restricted her from owning or being employed by any veterinary practice located within a 30-mile radius of the employer’s place of business.  After ending her employment, Dr. Heiderich started her own veterinarian practice outside the 30-mile radius of the non-competition covenant.  However, Dr. Heiderich delivered her veterinarian services to customers within the 30 mile radius.  The former employer sued to enforce the non-competition covenant and argued that the covenant prohibited Dr. Heiderich from “practicing” veterinarian services within the 30-mile radius.  While the trial court agreed with the employer, the appellate court disagreed.

The appellate court in Heiderich held that the non-competition covenant restricted Dr. Heiderich only from owning or being employed by a veterinarian practice located within the 30-mile radius; it did not restrict her from practicing veterinarian services within the 30-mile radius.  Because Dr. Heiderich opened her business outside the 30-mile radius, she did not breach the non-competition covenant.

As discussed in a previous article, Florida law requires that courts read non-competition covenants in favor of providing reasonable protection to a company’s legitimate business interests.  However, as the above cases demonstrate, Florida courts generally will not grant protection beyond what the terms of a non-competition covenant provide.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

FLORIDA LAW ON NON-COMPETITION COVENANTS: THE REQUIREMENT THAT COVENANTS BE READ IN FAVOR OF REASONABLE PROTECTION

Florida law requires that courts read non-competition covenants in favor of providing reasonable protection to a company’s legitimate business interest and prohibits courts from reading the non-competition covenant narrowly against the restraint.  Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012) provides an example of just how broadly Florida courts could read a non-competition agreement.

In Anarkali, a worker entered into a non-competition covenant with a company in 2008 as part of an employment agreement.  The non-competition covenant restricted the worker from competing with the company for a 2-year term beginning when the worker is “no longer employed by Company.”  Anarkali Boutique, Inc., 104 So. 3d at 1203.  In 2009, the worker’s status with the company changed from employee to independent contractor.  Two years later, in 2011, the worker left the company and opened a competing business.  The company sued to enforce the non-competition covenant.

The trial court found that because the 2-year term of the non-competition covenant would begin to run when the worker was “no longer employed by Company,” the 2-year term began to run in 2009, i.e., when the worker ceased being an employee of the company.  Consequently, the 2-year term expired in 2011, i.e., before the worker opened her own competing business.  Therefore, the trial court held that the non-competition covenant had expired and the company could not now enforce the non-competition covenant.  On appeal, the appellate court disagreed.

The appellate court found that the worker’s change from employee to independent contractor did not cause the 2-year non-competition period to begin running.  Instead, the non-competition period began to run when the worker left the company in 2011.  The appellate court based its decision in part on Florida statutory law that requires courts to read non-competition covenants “in favor of providing reasonable protection to all legitimate business interests” and prohibits courts from reading non-competition covenants “narrowly, against the restraint, or against the drafter of the contract.”  Fla. Stat. § 542.335(1)(h).  Reading the agreement in accordance with Florida law, the appellate court held that the “obvious purpose” of the non-competition agreement “was to preclude the worker from competing with the company after the company trained the worker and allowed her to build her own clientele.  It would be unreasonable to construe the contract as having the two-year non-compete period begin to run while the company still was employing the worker as an independent contractor … but have the non-compete period expire just before the worker leaves the company to start her own competing business.  To hold otherwise would lead to absurd conclusion.”  Anarkali Boutique, Inc., 104 So. 3d at 1205.

For employees, the Anarkali decision provides an example of how broadly courts will read a non-competition covenant.  Florida law on non-competition covenants, unlike the law in other states, forbids courts from reading non-competition covenants narrowly.  Consequently, Florida law on non-competition covenants tends to be employer-friendly.  As explained in a previous article, had the same facts been presented before a court in another jurisdiction, the outcome might have differed.

For employers, Anarkali serves as yet another example of how proper drafting could prevent incurring substantial legal fees.  Although the non-competition covenant in Anarkali was read in favor of the company, the company prevailed only at the appellate level.  Had the employment contract included a provision regarding the worker’s change to independent contractor status, the argument in Anarkali could have been avoided.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

DEPENDENT RELATIVE REVOCATION: THE DOCTRINE OF REVIVING REVOKED WILLS

What happens when a person writes a new will, revokes his or her previous valid will, and the probate court later determines that the new will is invalid?  Usually, the person will be considered to have died intestate, i.e., without a will, and his or her property will be distributed according to the Florida intestate succession statutes.  However, there is a way to “revive” the revoked valid will.  The doctrine of dependent relative revocation (“DRR”) allows a revoked will to be revived when revocation of that will was conditioned upon the validity of the new will.

The DRR doctrine creates a presumption that the decedent would have preferred to revive his earlier will rather than die without a will and let his or her property pass through Florida’s intestate succession statutes.  Essentially, the DRR doctrine is based on two presumptions: (1) the decedent did not intend to die without a will, and (2) the decedent revoked his or her previous will on the condition that the new will is valid.  Courts are more likely to apply these presumptions when the provisions of the revoked valid will and the new invalid will are similar.

In Stewart v. Johnson, 142 Fla. 425, 428 (Fla. 1940), the Florida Supreme Court applied DRR to revive a revoked will.  Lott Johnson had his attorney draft a will in 1937.  One year later, Mr. Johnson revoked his will and made a new one, but he did not have his attorney draft it.  Instead, Mr. Johnson dictated the provisions of his new will to his secretary who then signed the new will as the sole witness.  Both wills made substantial bequests to a woman who lived with Mr. Johnson.  Because Florida law requires that two witnesses sign a will, Mr. Johnsons’ new will was invalid.  The Court found that Mr. Johnson’s revocation of his previous will was conditioned on the validity of the new will.  Applying the DRR doctrine, the Court revived the revoked will.

Wehrheim v. Golden Pond Assisted Living Facility, 905 So. 2d 1002 (Fla. 5th DCA 2005) presents another example of a Florida court applying the DRR doctrine.  Dorothy Wehrheim executed a total of four wills during her lifetime.  None of those wills named her children as beneficiaries.  In 2002, Ms. Wehrheim executed her last will, which again left nothing to her children and expressly revoked all her previous wills.  After she died, Ms. Wehrheim’s children challenged the validity of the 2002 will arguing that it was the product of undue influence.  Ms. Wehrheim’s children, however, faced a problem with their challenge: if the 2002 will was invalid, then the DRR doctrine would revive Ms. Wehrheim’s previous revoked will, which left nothing to her children.  Thus, whether the 2002 will was valid or invalid, Ms. Wehrheim’s children got nothing.  However, Ms. Wehrheim’s children argued that, while most of the 2002 will was invalid, the revocation provision of the 2002 will was not the result of undue influence and was therefore valid.  Consequently, Ms. Wehrheim validly revoked all her previous wills.  Furthermore, because the provisions of the 2002 will and the previous wills were not sufficiently similar, Ms. Wehrheim intended to revoke her previous wills but did not intend that her revocation be conditioned on the validity of the 2002 will.  Ms. Wehrheim’s property must therefore be distributed according to Florida’s intestate succession statutes making her children the sole beneficiaries of her estate.  The district court found that it would be difficult to prove such an argument.  However, the court held that Ms. Wehrheim’s children were nonetheless entitled to try to prove their case.

The DRR doctrine endeavors to preserve the intent of the person who made the will.  Generally, a court will apply the DRR doctrine when (1) the decedent would have preferred to revive a past will rather than have his property pass through Florida’s intestate succession statutes, and (2) the valid will was revoked on the condition that a new invalid will take its place.  It is important to keep in mind, however, that DRR will not make an invalid will valid.  As the above cases illustrate, revoking a will is not something that should be done without consulting an attorney.  To ensure that your intent is preserved, you should contact an attorney before creating or revoking a will.

Florida Probate Attorney Peter T. Mavrick represents clients in probate, trust, and guardianship litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

UNLICENSED CONTRACTORS CANNOT ENFORCE CONSTRUCTION CONTRACTS BUT COULD BE LIABLE UNDER THOSE CONTRACTS

When two parties commit the same wrongdoing and are equally at fault, the court generally will not get involved in their transaction.  That rule is known as the doctrine of “in pari delicto.”  The doctrine of in pari delicto generally will apply to various forms of unlawful contracts.  For example, if two parties enter into an illegal contract to split the profits of a robbery, neither party can seek to have the court enforce the contract when one party refuses to share the profits.  Both parties were equally at fault—or in pari delicto—and the court will leave the parties as they are.  Until recently, some Florida courts applied the doctrine of in pari delicto to construction contracts entered into by unlicensed contractors.

In Earth Trades, Inc. v. T&G Corp., 108 So. 3d 580 (Fla. 2013), an unlicensed subcontractor (“Earth Trades”) entered into a construction contract with a general contractor (“T&G”).  T&G knew that Earth Trades was unlicensed when it entered into the contract.  After a dispute between the parties arose, Earth Trade sued T&G for breach of the contract.  T&G countersued for breach of contract against Earth Trade.  At that point Earth Trade argued that neither T&G nor Earth Trade could enforce the contract because the contract was unlawful.  Earth Trade further argued that because both parties knew that the contract was unlawful, the parties were in pari delicto.  The Florida Supreme Court disagreed.

The Florida legislature amended the statute regarding unlicensed construction contractors in 2003.  As amended, the statute reads as follows: “contracts entered into on or after October 1, 1990, by an unlicensed contractor shall be unenforceable in law or in equity by the unlicensed contractor.”  Fla. Stat. § 489.128(1) (emphasis added).  The statute therefore explicitly makes the contract unenforceable only by the unlicensed contractor and not the party contracting with the unlicensed contractor.  Because the legislature placed the liability on the unlicensed contractor, “the fault of the person or entity engaging in unlicensed contracting is not substantially equal to that of the party who merely hires a contractor with knowledge of the contractor’s unlicensed status.”  Earth Trades, Inc., 108 So. 3d at 587.  Earth Trades was therefore not in pari delicto with T&G even though T&G knew that Earth Trades was unlicensed.

Earth Trades, Inc. serves as a warning to those engaging in unlicensed contracting.  If a construction contract goes sour, the unlicensed contractor will not be able to enforce the contract against the other party.  The other party, however, might be able to enforce the construction contract against the unlicensed contractor.  As the Florida Supreme Court held, “to avoid the draconian effects of the statute, the unlicensed contractor need only comply with the law.”  Earth Trades, Inc. v. T&G Corp., 108 So. 3d at 586-587.

Peter T. Mavrick represents businesses in commercial litigation, labor/employment law, and trade secret and non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.

FRANCHISOR’S LIABILITY FOR FRANCHISEE ACTIONS

Franchise agreements can serve to establish a mutually beneficial relationship for the franchisor and the franchisee.  Under a franchise agreement, the franchisor’s brand is allowed to grow through an independent business, i.e., the franchisee, and the franchisee is able to start a business without having to create a new product or brand.  Because franchisees are generally independent businesses, the franchisor will normally not be liable for the franchisee’s actionable conduct.  However, the franchise agreement and other factual circumstances could render a franchisor vicariously liable for its franchisees’ actions.

In Parker v. Domino’s Pizza, 629 So. 2d 1026 (Fla. 4th DCA 1993), two plaintiffs were harmed as a result of an accident caused by a delivery driver employed by J&B Enterprises, a Domino’s Pizza (“Domino’s”) franchisee.  Under Florida law, an employer can be vicariously liable for his or her employees’ actions.  J&B Enterprises, as the employer of the delivery driver, could therefore be liable for the plaintiffs’ injuries.  The plaintiffs argued, however, that Domino’s also was vicariously liable for the injuries caused by the delivery driver.  The trial court held that Domino’s was not liable to the plaintiffs because the delivery driver was not a Domino’s employee.  On appeal, the appellate court disagreed.

The appellate court held that the operating manual that Domino’s provided to J&B Enterprises was “a veritable bible for overseeing a Domino’s operation,” which contained “prescriptions for every conceivable facet of the business.”  Parker v. Domino’s Pizza, 629 So. 2d 1026, 1029 (Fla. 4th DCA 1993).  Because the manual indicated that Domino’s retained a high degree of control over J&B Enterprises, J&B Enterprises could be considered an agent of Domino’s.  Consequently, the appellate court held that Domino’s could be found liable for the delivery driver’s actions.

Several years later, the same appellate court was presented with a similar question.  In Madison v. Hollywood Subs, Inc., 997 So. 2d 1270, 1270 (Fla. 4th DCA 2009), an individual was shot and killed outside a Miami Subs restaurant.  The restaurant was operated by Hollywood Subs, Inc., a Miami Subs franchisee.  The plaintiff argued that the killing was a result of inadequate security and that both Hollywood Subs, Inc., the franchisee, and Miami Subs, the franchisor, were liable.

The appellate court considered the franchise agreement and found that Miami Subs was not liable for the killing.  As the appellate court found, the “only control provided by the agreement was to insure uniformity in the standardization of products and services offered by the restaurant.”  Madison v. Hollywood Subs, Inc., 997 So. 2d 1270, 1270 (Fla. 4th DCA 2009).  Because Hollywood Subs, Inc. had sole control of the day-to-day operations, it was an independent contractor, and not an agent, of Miami Subs.

As the above cases demonstrate, whether a franchisee is an “agent” or “independent contractor” of a franchisor depends on the facts of each case.  If the franchisor retains the right to control the day-to-day business operations, it can be held liable for its franchisee’s actions.  If, however, the franchisor’s control is limited to maintaining uniformity among its franchisees, then the franchisor would generally not be vicariously liable for its franchisees’ conduct.

Peter T. Mavrick represents businesses in commercial litigation, labor/employment law, and trade secret and non-competition covenant litigation.  This article is not a substitute for legal advice tailored to a particular situation.  Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.