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Articles Posted in Non-Compete Agreements

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There are many important differences between employees and independent contractors that businesses must consider before contracting to hire one or the other. Some of these differences include, but are not limited to, the following:

1. Independent contractors are not subject to federal or state labor and employment laws like employees are;

2. The procedure for hiring independent contractors is different from employee hiring practices;

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Florida’s Non-Competition Covenant Statute, Section 542.335, lays out the requirements for enforceable restrictive covenants. One of the main requirements pursuant to subsection (b) of the statute is that the party seeking to enforce the restrictive covenant must plead and prove the existence of one or more “legitimate business interests” justifying the restrictive covenant. The Miami non-compete attorneys at the Mavrick Law Firm have, on several occasions, successfully defended entrepreneurs from lawsuits seeking to enforce such covenants. Subsection (b) provides a list of potential legitimate business interests that could justify the existence a restrictive covenant, stating in pertinent part:

The term “legitimate business interest” includes, but is not limited to:

1. Trade secrets, as defined in s. 688.002(4).

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The Mavrick Law Firm regularly represents entrepreneurs who open businesses in industries in which they were formerly employees. As such, often times we are confronted with covenants not to compete signed by the entrepreneur when he or she was employed with his or her former employer. The restrictive covenants will usually restrict the entrepreneur from competing with the former employer for a certain time period and within a specific geographic area. The Mavrick Law Firm has, on several occasions, successfully defended entrepreneurs from lawsuits seeking to enforce such covenants. One way we have successfully defended against these claims is by asserting that the plaintiff has committed some sort of wrongdoing or has engaged in improper conduct that prevents the plaintiff from enforcing the covenant not to compete at issue, otherwise known as the “unclean hands” doctrine.

The unclean hands doctrine is an equitable defense that precludes a plaintiff from recovering in equity due to some sort of wrongdoing or improper conduct on the part of the plaintiff. Peter Mavrick is a Miami non-compete lawyer who has won non-compete litigation in Miami-Dade Circuit Court through the unclean hands affirmative defense. Although “unclean hands” is a defense exclusive to claims seeking equitable relief, it has proven to be very useful in the employment context, particularly in cases where an employer is seeking to enforce a covenant not to compete. Under Florida law, if a former employer engaged in wrongdoing that caused the entrepreneur’s separation from employment, then the employer will be precluded from enforcing a covenant not to compete against the former employee. Such was the case in Bradley v. Health Coal., Inc., 687 So. 2d 329 (Fla. 3d DCA 1997).

In Bradley, the defendant was employed as a salesperson for the plaintiff’s blood plasma products and signed a covenant not to compete contained within his employment contract. After the defendant’s employment with plaintiff ended, plaintiff sought to enforce the covenant not to compete once it discovered that the defendant had subsequently gone to work for a competitor. The trial court enforced the covenant not to compete and entered an injunction against the defendant. However, in entering the injunction, the trial court declined to consider the defendant’s defense that there should be no injunction because defendant was forced to resign from his employment with plaintiff after he refused the plaintiff’s instructions to engage in improper business practices. Specifically, defendant contended he refused to resell certain plasma products that had been returned by a customer because he felt they were unsafe for medical use due to the handling during shipping. Furthermore, defendant asserted that he refused to obey an instruction to alter certain invoices to charge higher prices than the customers had agreed to.

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The Mavrick Law Firm’s earlier publication, Florida Non-Compete: Supreme Court To Resolve Conflicting Appellate Court Decisions, examined a conflict between the Fourth District Court of Appeal and the Fifth District Court of Appeal that centered around of the protection of referral sources in the home healthcare industry by Florida’s Non-Compete Statute, § 542.335, Fla. Stat. The Fourth DCA had an expansive view of the statute, finding § 542.335’s enumerated list of legitimate business interests to be non-exclusive. In so doing, the Fourth DCA distinguished referral sources from unidentified prospective patients: using a context-based analysis that viewed the substantial relationships with the referral sources as “the lifeblood” of the industries’ employers. Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060, 1067 (Fla. 4th DCA 2015). Conversely, the Fifth DCA found § 542.335’s enumerated list of legitimate business interests to be limited to the plain language of statute: finding that “unidentified prospective patients, and correspondingly referring physicians, do not qualify as legitimate business interests for the purpose of enforcing restrictive covenants.” Hiles v. Americare Home Therapy, Inc., 183 So. 3d 449, 454 (Fla. 5th DCA 2015). The Mavrick Law Firm regularly represents businesses, their owners, and former employees who become entrepreneurs in non-compete disputes in Fort Lauderdale, Miami, and Palm Beach. Mr. Mavrick has successfully handled many cases concerning enforcement of and defense against non-compete agreements.

Resolving the conflict, the Florida Supreme Court, in White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, SC16-28, 2017 WL 4053930 (Fla. Sept. 14, 2017), sided with the Fourth DCA and held that “home health service referral sources can be a protected legitimate business interest under the statute.” Id. at *1. The court explained that section 542.335’s listed legitimate business interests are illustrative and non-exhaustive. In other words, courts are able to expand the list of “legitimate business interests” beyond those explicitly enumerated in Florida’s non-compete statute. Thus, the statute can protect non-enumerated legitimate business interests in certain circumstances, which depend upon industry-specific and factual contexts. Accordingly, employers now have an easier task of tailoring restrictive covenants to protect their context-specific legitimate business interests.

At the beginning of its analysis, the court first analyzed section 542.335 to determine if the statute provides protection for non-enumerated interests. Quashing the Fifth DCA’s decision in Hiles, the court explained that “[r]eferral sources are simply not antithetical to the plain language of the statute because they are different interests than those contemplated by section 542.335(1)(b)3.” Id. at*5. The court further explained that “barring the protection of interests not specifically precluded by the statute is problematic because that would essentially convert section 542.335(1)(b)3 into an unintended and silent limitation on the statute’s non-exhaustive list definition.” Id. at *6. Further, the court sought out the legislative intent of the § 542.335 by reviewing the plain language of the statute: finding that the list of legitimate business interests was non-exhaustive based on the statute’s language, which provides that “[t]he term ‘legitimate business interest includes, but is not limited to…” Id. The court concluded that the list of legitimate business interests was illustrative and does not limit judicial finding of additional legitimate business interests: requiring courts to “engage in fact -and industry-specific determinations when construing non-enumerated interests.” Id. at *7.

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All businesses, especially those that may become the target of a merger or acquisition, that want their successor entities or assignees to have the right to enforce non-compete agreements against their former employees should include a provision that allows third-parties to enforce the non-compete agreements. Unless a non-compete agreement expressly authorizes enforcement of the non-compete by an employer’s assignees or successors, employers that did not include an assignment provision in their non-compete agreements could find their non-competes to be unenforceable if they are found to be “successor” entities. See Fla. Stat. § 542.335(1)(f); see also Collier HMA Physician Mgmt., LLC v. Menichello, 42 Fla. L. Weekly D1228 (Fla. 2d DCA May 31, 2017) (citing Corneal v. CF Hosting, Inc., 187 F.Supp.2d 1372, 1375 (S.D. Fla. 2001) (“[t]he term successor ‘is generally applicable to corporations wherein one corporation by a process of amalgamation, consolidation or duly authorized legal succession becomes vested in the rights and assumes the burdens of its predecessor corporation”).  Employers that include third-party enforcement provisions ensure that the employer’s interest in the agreement will survive in the event that the employer undergoes a corporate transformation and is found to be a successor in interest to the original employer. Thus, during the applicable restructuring event (merger, acquisition, spinoff, etc.), the controlling entity of an employer with executed non-compete agreements should balance the necessity of the maintenance of the employer’s non-compete agreements with the necessity of the employer becoming a different “successor” entity within the “traditional principles of corporate and business law.” Menichello, 42 Fla. L. Weekly D1228 at *7.  The Mavrick Law Firm regularly handles non-compete law in Broward, Miami-Dade, and Palm Beach Counties and has specifically handled matters concerning enforcement of non-compete agreements where there has been corporate assignees and successors.

In Menichello, the 2nd DCA recently held that the “successor defense” is ineffective against a valid non-compete agreement when the corporate identity of an employer – whose parent organizations underwent a series of mergers and acquisitions – is unchanged. See generally 42 Fla. L. Weekly D1228. In Menichello, the employer Collier HMA entered into a non-compete agreement (the Agreement) with the employee Dr. Menichello. After the parties entered into the Agreement, the ultimate parent of Collier HMA, Health Management Associates, Inc. was acquired and became a subsidiary of Community Health Systems, Inc. (CHS). After the merger, Dr. Menichello terminated his employment with Collier HMA and started working for Collier HMA’s direct competitor, in violation of his covenant not to compete. Collier HMA sought an injunction against Dr. Menichello that prohibited his employment with its competitor.

Reversing the lower-court’s refusal to enter an injunction against Dr. Menichello, the 2nd DCA clarified that “traditional principles of corporate law” determine “the obligations and liabilities of a successor corporation,” 42 Fla. L. Weekly D1228 at *7. The court then found that Collier HMA was not a “successor” within the meaning of the statute because Collier HMA “had not been consolidated with or amalgamated into another company after the merger.” It also noted that “Collier HMA had not acquired the rights of or assumed the burdens of any other entity” and that “nothing about the corporate structure or ownership of Collier HMA was different after the merger.” Id. Thus, in this case the court found that a third-party enforcement provision was not needed. See id. (“Collier HMA had not assigned the Agreement to another entity because no such assignment was required.”) Nevertheless, employers should include third-party enforcement provisions in their non-compete agreements so that they can engage in restructuring without the looming threat of a successor defense in a non-compete dispute.

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The Florida Supreme Court will soon release an opinion that settles whether unidentified prospective patients and referral physicians are protected legitimate business interests within the meaning of Florida’s Non-Compete Statute, § 542.335 Fla. Stat. On March 9, 2017, the Florida Supreme Court heard Oral Arguments in Americare Home Therapy, Inc., Etc. v. Hiles, a medical provider case, to address the issue. There is currently a noted conflict between the appellate courts with Third District Court of Appeal and Fourth District Court of Appeal on one side and the Fifth District Court of Appeal on the other.  The Third and Fourth DCAs are generous – or pro employer – in applying the statutes protections of legitimate business interests, while the Fifth DCA is applies the protections in a narrow fashion that is generous towards former employees. Attorney Peter Mavrick represents clients in non-compete litigation in Broward, Miami-Dade, Palm Beach, Lee, Collier, and Orange counties, and this divergent case law affects litigants in these counties and throughout Florida.

While this case is in the medical provider context, the outcome of this case will have widespread implications as the statute in question addresses restrictive covenants, otherwise known as non-compete agreements, that apply to all industries. Because the statutory wording of Section 542.335 is not restricted to the medical provider context, the Florida Supreme Court’s holding will likely extend beyond the medical provider context as it will consider the “substantial relationships with specific prospective or existing customers, patients, or clients.” § 542.335 Fla. Stat. Many employers use non-competes to protect themselves from the pervasiveness of competition from a former employee who has specific insights into the employer’s operations. If unchecked, a former employee could use their knowledge to disadvantage their former employer by usurping the employer’s business opportunities, recruiting the employer’s personnel, and targeting the employer’s clients.

In Hiles v. Americare Home Therapy, Inc., 183 So. 3d 449 (Fla. 5th DCA 2015), review granted (July 8, 2016), Carla Hiles appealed a trial court order that granted a temporary injunction filed by her former employer Americare Home Therapy. Hiles resigned from Americare and started working for Americare’s direct competitor. Upon termination, Hiles took information pertaining to Americare’s referral sources. The trial court believed that restrictive covenants set forth in Hiles’ employment agreement were supported by Americare’s legitimate business interest in its substantial relationships and good will with business partners and referral sources. However, the appellate court disagreed and reversed the injunction, concluding that “Americare was not entitled to the entry of an injunction barring Hiles from ‘interfering with … Americare’s … referral sources.’” Id. at 454.

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As discussed in prior articles, Florida’s Non-Competition Covenant Statute, § 542.335, permits covenants restraining competition so long as the restrictive covenant meets certain statutory requirements.  One of the statutory requirements is that the party seeking to enforce the restrictive covenant must “plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.” § 542.335(1)(b), Fla. Stat.  Subparagraph (b) provides a non-exclusive list of legitimate business interests that could justify a restrictive covenant, one of which is “extraordinary or specialized training.” The statute, however, fails to offer any guidance as to what type of training is considered “extraordinary or specialized.”  As a Fort Lauderdale non-compete lawyer, Peter Mavrick frequently handles cases where enforcement of a non-compete depends on whether there was “extraordinary” or “specialized” training. A recent judicial decision issued in the Southern District of Florida provides helpful insight for employers to determine whether the training they provide to employees can sufficiently justify a restrictive covenant.

In IDMWORKS, LLC v. Pophaly, 192 F. Supp.3d 1335 (S.D. Fla. 2016), the plaintiff was an information technology company providing corporate identity-and-access management (“IAM”) software solutions.  The company brought a lawsuit seeking an injunction against a former employee for breach of a restrictive covenant when the former employee began working for a client who the employee had provided IAM services for during his employment with the company.  One of the legitimate business interests alleged by the company justifying the restrictive covenant was extraordinary or specialized training.  At the time the company hired the employee, the employee had no prior experience with IAM services.  The company asserted that it provided the employee with substantial training, including a two to three-week formal training session with the employee’s direct supervisor, a conference for Quest APS for which the company covered travel expenses, the company’s subscription to the Oracle platform and Oracle training materials, and an “in-house training program” which the court found to be merely a forum for employees to communicate between themselves about clients and technologies they are using.

Despite the company’s assertions, the court held that such training was not sufficient to justify the restrictive covenant.  According to the court, “training constitutes a legitimate business interest protectable by an injunction only when the training rises to the level of being specialized or extraordinary.  This means that training must go beyond that typically offered in any given industry.”  In declining to enforce the injunction against the employee, the court offered several reasons why the training the employee received did not rise to the level of “specialized or extraordinary.”

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Florida’s Non-Compete Covenant Statute, section 542.335, establishes certain requirements for covenants restraining competition, and once such statutory requirements are met, the restrictive covenant becomes enforceable.  Section 542.335(1)(j) allows restrictive covenants to be enforced through a temporary injunction, which, pursuant to Rule 1.610(a)(1)(A) of the Florida Rules of Civil Procedure, may be granted only if “it appears from the specific facts shown by affidavit or verified pleading that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition.”  As such, section 542.335(1)(j) includes a provision stating that “the violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant.” This presumption is critical to the issuance of a temporary injunction to enjoin a violation of a restrictive covenant because at the time a party is seeking such an injunction, he or she may not have had the benefit of completing discovery to ascertain the exact nature and amount of harm suffered due to the violation of the restrictive covenant.  Thus, the presumption of irreparable injury allows the party seeking to enforce the restrictive covenant to do so without the need for such discovery.  An example of just how critical this presumption is can be found in a recent Florida appellate court decision out of the Second District Court of Appeals.

In Medco Data, LLC v. Bailey, 152 So. 3d 105, 106 (Fla. 2d DCA 2014), the plaintiff, Medco Data, LLC (“Medco Data”), appealed a trial court’s denial of a temporary injunction against three of its former employees for violating the restrictive covenants contained in their respective employment agreements.  The trial court found that the agreements were “well written” and “valid,” and further found that the former employees “did something to breach the relationship and it cost Medco Data money.”  Nevertheless, the trial court denied Medco Data’s motion for temporary injunction, stating “Medco Data has to prove a likelihood of irreparable harm.  I don’t find that the company can show that in this case.”  Relying primarily on the wording of section 542.335 and prior appellate court authority, the Second District Court of Appeals reversed the trial court’s denial of the temporary injunction “because the trial court failed to apply the statutory presumption of irreparable injury under section 542.335(1)(j),” and remanded the case to the trial court for reconsideration in view of the presumption.

The appellate court’s decision in Medco Data, LLC v. Bailey makes it clear that a trial court’s failure to apply the presumption of irreparable injury when a party is seeking an injunction to enjoin the violation of an enforceable restrictive covenant constitutes reversible error.  The application of the presumption, however, does not always mean that an injunction will be granted.  The presumption is a rebuttable.  In other words, once the presumption is applied, the burden shifts to the party opposing the injunction to show the absence of injury.  Nevertheless, the fact that the presumption must be applied after a court finds that an enforceable restrictive covenant has been violated is significant because, as discussed above, it avoids the need for lengthy discovery prior to the issuance of a temporary injunction.

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Non-compete agreements are not always enforceable. Florida typically requires that all competition be allowed, and there shall be no restriction of competition, but there’s a separate statute in Florida, which is 542.335 Florida statutes that governs non-compete agreements. That statute requires that there be certain legitimate business interests of the employer set out in the statute such as for example, the protection of trade secrets or the protection of confidential information. The employer has to plead and prove these to be able to force a non-compete covenant.

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Interference with contractual relations is a business tort, and it basically involves this, that there is a contractual relationship and somebody knows the contractual relationship exists, but they go ahead and try to get the person to break the contract for their own personal advantage.

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