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Articles Posted in Non-Compete Agreements

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Businesses in highly competitive industries often create and maintain highly confidential business information and trade secrets. Businesses spend substantial amounts of money curating this confidential information. To protect this investment, businesses must take steps to ensure the continued secrecy of its confidential information, such as limiting access and requiring employees with access to sign confidentiality and non-compete agreements. Peter Mavrick is a Fort Lauderdale trade secret attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation and injunction proceedings,  business litigation , trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of Freedom Med., Inc. v. Sewpersaud, 620CV771ORL37GJK, 2020 WL 3443837 (M.D. Fla. June 23, 2020), Freedom Medical, Inc. (“Freedom Medical”) rented and sold medical equipment to hospitals, nursing homes, and other healthcare providers. Freedom Medical created and maintained highly confidential business information, including marketing strategies, contact lists, pricing and customer lists, and relationships with purchasers and suppliers (collectively, “Confidential Information”). Freedom Medical spent thousands of dollars curating this Confidential Information and took steps to ensure its continued secrecy, such as limiting access and requiring Freedom Medical employees with access to sign agreements which protects that information. Maheshwar Sewpersaud (“Sewpersaud”) was a branch manager of Freedom Medical’s Orlando Office. Sewpersaud also assisted in sales outside his territory, including servicing national accounts. Freedom Medical and Sewpersuad entered an employment agreement which contained a with non-compete, non-solicitation, and confidentiality clauses.

Sewpersaud had access to Freedom Medical’s confidential information, including information on the specialty beds offered by Freedom Medical and the company’s strategy for selling them. Freedom Medical rented and sold specialty beds including Versatech-branded beds (“Versatech Beds”) and Rotec-branded beds (“Rotec Beds”). Rotec International (“Rotec”) manufactured both Versatech and Rotec Beds.

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Pursuant to Section 542.335, Florida Statutes, a non-compete agreement must be in a writing signed by the party against whom enforcement is sought. Businesses often enter agreements with their employees for specified period with an option to renew. Courts have found that written agreements can be extended beyond their expiration dates when the parties agree to the extension and  continue to conduct themselves in compliance with the agreement.  An extension of the non-compete agreement, however, may still require a writing as a matter of law. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation and injunction proceedings, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Gray v. Prime Mgmt. Group, Inc., 912 So. 2d 711 (Fla. 4th DCA 2005), where Prime Management Group, Inc. (Prime) hired Douglas Gray (Gray) as the company president. Prime and Gray entered into an employment agreement which contained non-compete and nondisclosure covenants (Agreement). The non-compete covenant prohibited Gray from competing or soliciting business from Prime’s clients for a period of 18 months “following termination of this Agreement.” The Agreement was in effect for five-year period, unless terminated earlier pursuant to its terms, or extended by mutual agreement of Prime and Gray. After the five-year term expired, Gray continued to work for Prime for fifteen months. Prime and Gray were negotiating the terms of a new contract. Gray then resigned and started a competing management business called Pinnacle.

Prime filed a lawsuit against Gray for breach of the non-compete agreement and filed a motion for a temporary injunction against Gray. Gray contended that the non-compete agreement was not valid because the Agreement expired at the end of the five-year term. Prime contended that the non-compete covenant survived expiration of the Agreement’s explicit five-year term. The trial court granted Prime’s motion for temporary injunction finding that it was implied that Prime and Gray mutually assented to a new contract containing the same provisions as the original written contract. The trial court’s decision was based on case law holding that when an employment agreement expires by its own terms, and the parties continue to perform as before, it is implied that the parties mutually assented to a new contract containing the same terms as the original contract. The trial court Judge held that after the expiration of the five-year term, Gray and Prime conducted themselves as though neither the Agreement nor the non-compete expired. Gray immediately appealed.

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When a party to a non-compete agreement no longer provides services in that particular “line of business,” they may no longer have a legitimate business interest preventing the other party from competing. However, discontinuance from servicing a specific demographic of customers does not necessary constitute the fact that a party may no longer offer services in that line of business. Peter Mavrick is a Boca Raton non-compete attorney, and also advocates for clients in Palm Beach, Fort Lauderdale, and Miami, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of USI Ins. Services of Florida Inc. v. Pettineo, 987 So. 2d 763 (Fla. 4th DCA 2008), a seller and buyer entered into an asset purchase agreement (Agreement) for the sale of an insurance agency, along with the seller’s accounts and goodwill. The Agreement structured an employment arrangement for the seller to continue working for the insurance agency for a term and be compensated by a salary and commission. The Agreement contained a non-compete provision, which prohibited the seller from directly or indirectly carrying on a business that provided any insurance-related services within a specified territory for five years. The Agreement also contained a confidentiality provision that prohibited the seller from disclosing confidential information; and a non-solicitation provision that precluded the seller from soliciting or providing services to any client of the buyer.

Because seller’s commissions were considered part of the purchase price, he voiced concern about alleged deficiencies in how the buyer conducted business. The parties executed an amendment to the Agreement with additional consideration, and which reaffirmed the non-compete provision. The amendment removed a provision from the original Agreement, which prevented the buyer from taking action that adversely affected the seller’s ability to earn commissions.  The buyer altered its business strategy and no longer issued policies under a certain minimum dollar amount. Those smaller dollar amount policies were referred to other companies.

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When a business is purchased, often the former owner will enter into a separate employment agreement to provide continuity of service to the customers and a smooth transition from the former owner to the new one.  Such agreements typically include a non-compete provision so that the former owner does not attempt to take the customers away from the new owner. If a dispute arises over these agreements and one agreement contains an arbitration clause and the other does not, then a court will need to interpret the agreements and evaluate the claims to determine if the parties must arbitrate the claims. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in Sunsplash Events Inc. v. Robles, 150 So. 3d 1194 (Fla. 4th DCA 2014). Pedro Robles (Robles) entered an employment agreement with Sunsplash Events Inc. (Sunsplash) which contained a non-compete provision prohibiting Robles from having direct or indirect ownership or other financial interest in any business which competes with Sunsplash. The agreement also contained an arbitration provision which stated, in pertinent part, “the Parties hereby agree and specifically stipulate that all differences, claims or matters of dispute relating to the performance of duties and/or benefits arising between the Parties to this Agreement contained herein shall be submitted to a mutually acceptable arbitrator.” Robles and Sunsplash also executed a bill of sale agreement selling Robles’ business to Sunsplash.  The bill of sale agreement required Robles to cease further operation of his business. The bill of sale agreement, however, did not contain an arbitration provision.

Robles later filed a lawsuit against Sunsplash and its president (Defendants) based on claims failure to pay under the employment agreement or the bill of sale agreement, and claims that Sunsplash’s president made misrepresentations to Robles that induced him to enter the employment and bill of sale agreements. Defendants moved to dismiss and compel arbitration of of the claims relating to the bill of sale agreement. Defendants contended that the employment agreement’s arbitration provision, was “written broadly to encompass all matter[s] between the parties…. Therefore, the issue of the bill of sale is arbitrable and this case must be dismissed.”

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When a company purchases the assets of another company, the circumstances in which the sale takes place could impact the enforceability of the seller’s non-compete agreements with its employees. For example, a 100 percent stock purchase of an active corporation will generally entitle the buyer to enforce the seller’s non-compete agreements. However, if the buyer is merely purchasing corporate assets from a dissolved corporation, the buyer may not be entitled to enforce the dissolved corporation’s non-compete agreements. Even if an employee bound by a non-compete agreement worked for the seller throughout the dissolution of the company and then continued to work for the buyer thereafter, this fact alone does not constitute consent by the employee to be bound by the non-compete agreement with the purchasing company. Peter Mavrick is a Miami non-compete lawyer, and also represents clients in non-compete litigation in Fort Lauderdale, Boca Raton, and Palm Beach. Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of Sears Termite & Pest Control, Inc. v. Arnold, 745 So. 2d 485 (Fla. 1st DCA 1999), All America Termite & Pest Control, Inc. (All America) entered non-compete agreements with its employees David Arnold (Arnold) and Gary Atchey (Atchey). A few years later, Sears Roebuck and Co. purchased 100 percent of the stock of All America and changed the company’s name to Sears Termite and Pest Control, Inc. (Sears).  Arnold and Atchey continued their employment with All America and Sears during this period of transition. Arnold left his employment with Sears and began a competing company, called Diamond Termite & Pest Control (Diamond). Atchey also left his employment with Sears and went to work for Diamond.

Sears filed a lawsuit for damages against Arnold, Diamond, and Atchey (Defendants) and filed a motion for temporary injunction. After an evidentiary hearing, the court denied the motion for temporary injunction. Sears immediately appealed.  Defendants contended that the non-compete agreements were unenforceable, because All America did not assign the contracts to Sears. Under Section 542.335(1)(f) of the Florida Statutes, non-compete agreements are enforceable by a successor company, provided that the non-compete agreement expressly authorizes enforcement by the successor company.

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Businesses seeking to enforce their non-compete agreements often need to seek a temporary injunction to prevent irreparable harm. Non-compete law is unique because the moving party does not need to provide evidence quantifying the amount of possible damages in order to show irreparable harm.  Under Florida law, the  business instead needs to allege that immeasurable damages would result without a temporary injunction.  Peter Mavrick is a Palm Beach non-compete attorney, and also advocates for clients in Boca Raton, Fort Lauderdale, and Miami, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Data Payment Sys., Inc. v. Caso, 253 So. 3d 53 (Fla. 3d DCA 2018). Data Payment Systems, Inc. (Data Payment), a payment processing company, entered a written sub-office agreement with Ignite Payments, Inc. (“Ignite”), an independent contractor. The sub-office agreement contained a non-compete clause and a confidentiality clause. Juan Marcos Batista (Batista) executed this agreement on behalf of Ignite. Batista and Christopher Caso (Caso) created Onepay LLC (Onepay). Data Payment then entered a sub-office agreement with One-pay with nearly identical non-compete and confidentiality clauses.

During the course of Ignite and Onepay’s work for Data Payment, Caso and Batista were provided access to Data Payment’s confidential information and trade secrets. Caso and Batista allegedly created Ireland Pay LLC (Ireland Pay), a payment processing service in direct competition with Data Payment in violation of the non-compete clause. Data Payment terminated its agreements with Ignite and Onepay because Caso and Bastista allegedly misappropriated Data Payment’s trade secrets to solicit its customers. Caso also allegedly threatened a Data Payment employee with violence.

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Businesses often execute non-compete agreements separate from but contemporaneously with an employment agreement. When the employment agreement contains an arbitration provision, but the non-compete agreement does not, parties can dispute whether the non-compete agreement is arbitrable. Further, it becomes more complicated if the non-compete agreement contains wording that suggests that disputes must be litigated in court. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Hedden v. Z Oldco, LLC, 44 Fla. L. Weekly D2631 (Fla. 2d DCA Oct. 30, 2019). Terry P. Hedden, Jr. (Hedden) sold his business to Z Oldco, LLC’s predecessor (Z Oldco) and agreed to become an employee for one year to assist with the transition of the business and maintain customer goodwill. Hedden entered into a Compensation Agreement and a Non-Compete Agreement. The Compensation Agreement governed the terms of the parties’ relationship and provided for the payment of a two-million-dollar bonus, to be paid out in intervals based on the success of the business, with the balance paid upon termination of Hedden’s employment. Payment of this bonus was conditioned upon Hedden’s continued compliance with the Non-Compete Agreement. The Non-Compete Agreement prohibited Hedden from operating a similar business for two years following termination of his employment.

Almost five years after termination of Hedden’s employment, Hedden sent Z Oldco a letter demanding payment of the bonus due under the Compensation Agreement. Z Oldco filed a declaratory judgment action, seeking a determination as to whether: (1) Hedden violated the Non-Compete Agreement (Count I); (2) the bonus was due to Hedden under the Compensation Agreement if he was in violation of the Non-Compete Agreement (Count II); and (3) whether the terms of the Compensation Agreement had been fulfilled such that payment of the Exit Bonus was due to Hedden (Count III). Hedden moved to compel arbitration pursuant to the arbitration clause of the Compensation Agreement.

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Florida and Maryland’s non-compete laws are protective of business interests in customer relationships and goodwill.  Due to the advent of remote working capabilities, there are often cases when the non-compete laws of more than one state may be implicated.  For example, a Florida employee may work in Florida for a company based in Maryland, and sign a non-compete agreement that contains an explicit provision requiring that Maryland law controls any disputes between employer and employee.  In the context of employment law, the Florida law and Maryland law differ in contract interpretation and the burdens created by non-compete agreements on employees. Florida courts have found that a non-compete clause, itself, must be reasonably necessary to protect the established interests of the business. These subtle differences can impact the determination by the courts. Maryland courts have held that the enforcement of a non-compete clause must show, among other things, that the agreement is “no wider in scope and duration than is reasonably necessary to protect the employer’s interests.” CytImmune Scis., Inc. v. Paciotti, 2016 WL 3218726 (D. Md. June, June 10, 2016). Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.

Florida courts tend to limit their review to the wording of non-compete contracts for indications of the parties’ intent. “In construing contracts, the court’s concern is to determine the intention of the parties from the language used, objects to be accomplished, other provisions in the Contract which might shed light upon the question, and circumstances under which it was entered into.”  Bal Harbour Shops, Inc. v. Greenleaf & Crosby Co., Inc., 274 So. 2d 13 (Fla. 3rd DCA 1973). Generally, parol evidence (evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual terms of a written contract) is admissible only to clarify ambiguous terms of contract in order to ascertain the parties’ intent. O’Neill v. Scher, 997 So. 2d 1205 (Fla. 3d DCA 2008) (Court could not indulge in modification of the unambiguous express terms).

Maryland courts use the “objective theory of contract interpretation” to determine “from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated.” Dennis v. Fire & Police Emp’rs’ Ret. Sys., 390 A.2d 737 (Md. 2006). Dennis held that the test is not what the parties to the contract intended it to mean, but what a reasonable person in the parties’ position would have thought it to mean. In the case of Highland Consulting Group, Inc. v. Soule, 2020 WL 1272516 (S.D. Fla. March 17, 2020), the district court, applying Maryland law, addressed whether the defendant complied with the contractual requirement to return the company’s property upon termination of employment. The former employee returned the property to the company only in response to a discovery request in the lawsuit.  Soule held that no reasonable person could have interpreted the phrase “[u]pon termination of employment,” to be satisfied only after a lawsuit was filed and only in response to a discovery request.  Soule considered this unambiguous phrase in by what a reasonable person in the parties’ shoes would have thought this phrase in the contract to mean. This standard is more arbitrary than the Florida standard, because it can encompass the subjective viewpoint of the trier of fact.

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For a non-compete agreement to be enforceable, it must be founded on a legitimate business interest which justifies the need for the restraint on competition. A substantial relationship with customers is a common reason asserted to justify the non-compete, however, courts will often examine the exclusivity and nature of the relationship with the customer to determine if the protection is reasonably necessary. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Anich Indus., Inc. v. Raney, 751 So. 2d 767 (Fla. 5th DCA 2000). Anich Industries, Inc. (Anich), an industrial tool and supply business, hired Deanna Raney (Raney) as a salesperson. Anich and Raney entered a non-compete agreement. A few months after entering the agreement, Raney resigned and accepted a position with Anich’s competitor, Olsen Industrial Sales, Inc. (Olsen).  Anich filed a lawsuit against Raney and Olsen seeking injunctive relief, temporarily and permanently, as well as damages based on breach of the non-compete agreement, and other claims. Anich filed a motion for temporary injunction.

At the evidentiary hearing on the motion for temporary injunction, Anich presented testimony from three witnesses who purchased tools and equipment from Anich through Raney. These witnesses testified that Raney sold them equipment on behalf of Olsen shortly after her employment with Anich ended. One witness testified that Raney sold him a tool on behalf of Olsen while still employed by Anich. Each of these witnesses, however, conceded that they did not have an exclusive relationship with Anich and that they purchased tools and equipment from whomever could most quickly and cheaply supply the necessary equipment.

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A party may seek to reform (change the terms of a contract) a contract when there is erroneous term in the wording of the contract, which was the product of a mutual mistake (made by both parties), a unilateral mistake (made by one party), or inequitable conduct by one party in making the contract. Florida law authorizes a court to reform a contract to conform to the parties’ intent for the agreement. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also represents clients in non-compete disputes in Miami, Boca Raton, and Palm Beach, Florida.  Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this was addressed in the case of Resouluna 4840, LLC v. Palceski, 2019 WL 7482222 (M.D. Fla. Sept. 5, 2019), Resouluna 4840, LLC (“Plaintiff”), a medical spa, employed Rachel Palceski (“Palceski”). When Palceski became a full-time employee for Plaintiff, she signed an employment agreement with a one-year non-competition provision. One year later, Plaintiff and Palceski negotiated a new employment agreement.  Palceski contended she would not sign an agreement with a non-competition provision that was more than six months in duration. Palceski changed the proposed non-competition provision to six months, signed it, and returned it. Plaintiff contended that it was unaware of this change until after Palceski’s employment ended. Plaintiff never signed the new employment agreement, but Palceski continued to work for Plaintiff for approximately two months after signing and returning it. Palceski resigned from her employment with Plaintiff. More than six months later, Palceski went back to work for her former employer. Plaintiff filed a lawsuit against Palceski for soliciting Plaintiff’s customers in violation of the employment agreement. Plaintiff also filed a motion for a preliminary injunction.

In federal court, the party seeking a preliminary injunction must show, “(1) it has a substantial likelihood of success on the merits; (2) irreparable injury will be suffered unless the injunction issues; (3) the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and (4) if issued, the injunction would not be adverse to the public interest.” Forsyth Cty. v. U.S. Army Corps of Eng’rs, 633 F.3d 1032 (11th Cir. 2011). “A preliminary injunction…‘is an extraordinary and drastic remedy not to be granted unless the movant clearly establishes the burden of persuasion as to the four requisites.’” Llovera v. Fla., 576 F. App’x 894 (11th Cir. 2014).

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