Articles Posted in Non-Compete Agreements

Under Florida law, a restrictive covenant is not enforceable “unless it is set forth in a writing signed by the person against whom enforcement is sought.” Fla. Stat. § 542.335(1)(a).  By this general rule, injunctions to enforce non-compete provisions are primarily entered against the parties to the contract.  However, Florida law allows a court to enter an injunction against competing businesses that are alter-egos of the party who signed the non-compete contract.  These alter-egos include businesses that are being operated by spouses, family members, or shell corporations of the signator to the non-compete agreement. This exception applies to these other persons or entities even though they are not parties to the agreement, because they are either under the control of the signer of the non-compete contract or are otherwise being used to aid and abet that person in violating the non-compete clause. Peter Mavrick is a Fort Lauderdale non-compete lawyer who has extensive experience dealing with non-compete agreements and claims for injunctive relief.

For example, in the case of Dad’s Properties, Inc. v. Lucas, et al., 545 So.2d 926 (Fla. 2d DCA 1989), Albert C. Lucas (“Lucas”) and his company Al Lucas Enterprises, Inc. sold “Sugar Daddy’s”, an adult entertainment nightclub to Dad’s Properties, Inc. (“Dad’s”.)  At the closing the parties executed a covenant not to compete restricting Lucas and his company from competing with Dad’s within a 50 mile radius for 5 years.  One year later, Lucas’ wife opened an adult entertainment nightclub within 50 miles of Sugar Daddy’s.  Dad’s filed suit and at the evidentiary hearing on Dad’s motion for preliminary injunction, evidence was presented that Lucas exerted considerable control over the design, and operation of his wife’s club.  There was also evidence that he and his wife solicited employees and dancers of Sugar Daddy’s to work for his wife’s club. Without stating the basis for its decision, the trial court denied the motion for preliminary injunction against Lucas, his company, Lucas’s wife and her company from continuing to compete with Dad’s.

Dad’s immediately appealed and the appellate court reversed the trial court’s decision, holding that “…individuals and entities may be enjoined from aiding and abetting a covenantor in violating a covenant not to compete.”  Further that “…an injunction not only binds the parties defendant but also those identified with them in interest, in privity with them, represented by them or subject to their control.”  It was clear that Mrs. Lucas and her company were aided and abetted by Mr. Lucas and his company in their intentional violation of the covenant. Because of the close relationship to the covenantors, Mrs. Lucas and her company were also subject to an injunction to refrain from competing in violation of the agreement.

A non-competition provision in an employment contract prohibits an employee from competing with his/her employer for a specified term after termination of the agreement.  However, if that employee stays on with the employer on an at-will basis after the term of the written agreement expires, then the agreement does not automatically renew for another term. This means that a covenant not-to-compete can expire even while the employee continues working for the employer as an at-will employee. Peter Mavrick is a Fort Lauderdale non-compete lawyer who has extensive experience dealing with non-compete agreements and claims for injunctive relief.

In the case of Zupnik v. All Florida Paper, Inc., 997 So.2d 1234 (Fla. 3d DCA 2008), Stewart Zupnik (“Zupnik”), a paper products sales person entered into an employment agreement with All Florida Paper, Inc. (“All Florida”) with a twelve-month non-competition provision as well as a five-year restriction regarding confidential trade secrets. Zupnik’s consideration for entering the agreement was a guaranteed salary and a commission plan for a two-year period. After the two-year period expired, the salary and the commission were no longer guaranteed, but Zupnik could remain as an at-will employee.

Once the two-year contract term expired, Zupnik remained as an at-will employee of All Florida for an additional two years.  After several adverse changes to his compensation were made by All Florida, Zupnik left to form his own company to continue to serve his long-standing customers.  In addition, he contacted Dade Paper, a competitor, to make an agreement to become the redistributor of their paper products.

The use of non-compete covenants by employers to protect business interests is not an uncommon practice. The validity of these covenants is governed by Florida Statute 542.335, which requires: “the employer to plead and prove (1) the existence of one or more legitimate business interests justifying the restrictive covenant and (2) that the contractually specified restraint is reasonably necessary to protect the established interests of the employer.” North American Products Corp. v. Moore, 196 F.Supp.2d 1217, 1228 (M.D. Fla. 2002). Additionally, if the employer establishes it has a “legitimate business interest” to protect, irreparable injuries will be presumed and it will be up to the employee to prove the absence of injuries. A “legitimate business interest” includes, but is not limited to: valuable confidential business information, specific relationships with prospective or existing customers, and customer goodwill associated with a specific geographical area. Fla. Stat. 542.335 (1)(b). Peter Mavrick is a Palm Beach non-compete attorney who has extensive experience dealing with non-compete agreements.

It is not always clear when customer goodwill and specific relationships with customers are considered legitimate business interests. However, the United States District Court for the Middle District Florida helped clarify this issue in North American Products Corp. (“NAPCO”).  NAPCO, a tool manufacturing, selling, and distributing business, filed with the court a motion for a preliminary injunction against a former employee (“Moore”) to enjoin him from soliciting business directly or indirectly from NAPCO customers for 1 year after Moore’s employment ended. Moore was employed with NAPCO and he entered into various employment agreements with non-compete covenants. The most recent and controlling agreement contained a non-compete clause prohibiting Moore from “soliciting business in competition with the Company [NAPCO] from any customers of. . . [NAPCO], with which the employee [Moore] made sales efforts in the year prior to the termination within. . . Florida. . . for a period of one year (360 days) after the date of termination.” After 15 years of employment with NAPCO, Moore resigned. Despite the non-compete clause, he started and became Chief Executive Officer of Tru-Cut in Florida, which was poised to be a direct competitor of NAPCO. Additionally, before his resignation, Moore and a former NAPCO employee, John Bennett (“Bennett”), worked together to prepare for the creation of Tru-Cut. Bennett began to formulate sales strategies to market to NAPCO customers while Moore applied for financing and listed at least five NAPCO customers as key customers of Tru-Cut.

NAPCO immediately sought a preliminary injunction against Moore. NAPCO argued that during his employment with NAPCO Moore gained substantial knowledge of NAPCO’s customers, their purchasing history, needs and preferences and, as such, NAPCO had a legitimate business interest. Furthermore, NAPCO averred that, “customers of NAPCO were enticed to do business with Moore’s new company, a direct violation of the non-solicitation agreement…”  The federal court agreed with NAPCO and concluded that, “NAPCO has a legitimate business interest in protecting the substantial relationships it has with its existing customers and thus the Court must presume that NAPCO will be irreparably harmed unless Defendant can establish that NAPCO will not be harmed.” Moore argued that NAPCO could not have been irreparably harmed because NAPCO did not have contracts with its customers and, thus, Moore could not have interfered with customer relationships. The federal court rejected this argument. The court stated that the “focus of preliminary injunctive relief is on maintaining long standing relationships and preserving the goodwill of a company built up over the course of years of doing business. Whether a company has a contract or not with its customers has no bearing on whether the company has been or will be damaged by solicitation of its customers.” Furthermore, the court found the “net effect of this solicitation has a high possibility of permanently damaging the reputation and goodwill of [the employer].” The court affirmed the trial court’s decision and granted NAPCO’s motion for a preliminary injunction against its former employee.

Many employment agreements contain covenants not to compete to protect employers from employees competing against them when the employment ends. If the employer seeks to enforce this covenant, it must prove, among other things, that it will suffer irreparable harm if the covenant is not enforced. This irreparable harm is presumed if the employee violates an enforceable covenant. In the case of Litwinczuk, M.D., v. Palm Beach Cardiovascular, 939 So.2d 268 (Fla. 4^th DCA 2006), Palm Beach Cardiovascular (the “Clinic”) sued Mr. Litwinczuk, M.D. (the “Doctor”) to enforce a non-compete clause enjoining the Doctor from operating a competing practice for 2 years within Palm Beach County. Despite the non-compete, the Doctor resigned and opened his own practice in the same field just four blocks away from the Clinic and retained many of the Clinic’s patients. The trial court ruled in favor of the Clinic, finding that the Doctor violated the covenant and, therefore, irreparable harm to the Clinic was presumed. A temporary injunction was issued preventing the Doctor from continuing to operate his new practice for 2 years. However, the court reduced the geographic scope of the noncompete. The court held that the Palm Beach County geographical restriction was overbroad and unreasonable. Peter Mavrick is a Palm Beach non-compete attorney who has extensive experience dealing with non-compete agreements.

The factual background of the case is fairly straightforward. In an effort to expand its business, the Clinic paid a recruiter $22,000 to find a doctor suitable for its practice and purchased an existing practice for $40,000 to provide a patient base for the newly hired doctor. The clinic hired the Doctor and they entered into an employment agreement with a non-complete clause in which the Doctor agreed that if he resigned, he would not enter into any practice with a “competing enterprise” for 2 years within Palm Beach County. Additionally, during those 2 years he was not to interfere with the Clinic’s relationships with its employees or patients. Despite this agreement, the Doctor resigned and began operating his own practice four blocks away from the Clinic, in the same field, and proceeded to see the Clinic’s patients.

The Clinic filed suit to enforce the non-compete covenant arguing that the Doctor had violated the covenant and, as such, the Clinic suffered irreparable harm. “In seeking an injunction, the movant must show: (1) irreparable harm if the status quo is not maintained; (2) no adequate remedy of law; (3) a clear legal right to the relief requested; (4) that any public interest will not be disserved; and (5) a substantial likelihood of success on the merits.” Shafer v. Shafer, 898 So.2d 1053, 1055 (Fla. 4^th DCA 2005). Additionally, Section 542.335(1)(j), Florida Statutes, provides in part, “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 rebuttable and not conclusive. Passalacqua v. Naviant, Inc., 844 So.2d 792, 796 (Fla. 4^th DCA 2003). The trial court found the Doctor violated the non-compete clause, presumed irreparable harm, and issued a temporary injunction. The court, however, reduced the geographical location to a more reasonable area.

If an employer can successfully meet their burden and establish the necessary elements for a valid non-compete agreement, the court will likely grant an injunction to protect the employer’s legitimate business interests. The injunction will only be granted if it is determined that the former employee breached the valid non-compete agreement. Once this is determined, the injunction will prohibit the former employee from engaging in the alleged harmful conduct for a specified period. The court has the discretionary power to determine what period the injunction should be measured from. The injunction could be measured from the date of the employee’s termination, or from the date of the court order. Peter Mavrick is a Fort Lauderdale non-compete lawyer who has extensive experience dealing with non-compete agreements and claims for injunctive relief.

The court’s decision to grant or deny a motion for injunctive relief is purely discretionary. An injunction is viewed as an extraordinary remedy that requires the court to balance certain factors. Particularly, the court will balance the possibility of irreparable harm to the employer, and the inadequacy of damages that would result if the injunction were not granted. If a court finds that the employee did violate a valid non-compete agreement, the court will also look to see whether the restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interests of the employer.

In Anakarli Boutique, Inc. v. Ortiz, 152 So. 3d 107 (Fla. 4th DCA 2014), Florida’s Fourth District Court of Appeal was confronted with the issue of how the injunction period should be measured.  In Ortiz, the employer brought an action against a former employee for breach of a two-year non-compete agreement, and filed a motion for temporary injunction. The former employee allegedly violated her non-compete agreement with the employer and left the company to open her own competing business near the company’s location. The trial court denied the employer’s motion for temporary injunction. The trial court reasoned that the two-year non-compete period elapsed when the former employee became an independent contractor and it expired before she left to start her own competing business. The employer rebutted the trial court’s reasoning and contended that the two-year non-compete period should have started from the time the former employer left. The employer then appealed.

Non-compete agreements serve to protect an employer’s business interests and prevent employees from engaging in unfair competition. When a business sells its assets, merges with another company, or dissolves entirely, the ability to assign a non-compete agreement is affected differently. Peter Mavrick is a Fort Lauderdale non-compete lawyer who has extensive experience dealing with non-compete agreements and their assignability.

Florida’s Fourth District Court of Appeal in Magner Intern. Corp. v. Brett, 960 So. 2d 841 (Fla. 4th DCA 2007), was confronted with the issue of whether a corporate successor could enforce the non-compete agreement of the former employer. The corporate successor sought an emergency motion for temporary injunction to enforce the former employer’s non-compete agreement. In response to the corporate successor’s motion, the employee alleged the following: (1) that the former non-compete agreement was no longer valid because the corporation had been dissolved; (2) two separate corporations had been formed; and (3) as a result of the dissolution his non-compete agreement had not been properly assigned to the corporate successor. The Seventeenth Judicial Circuit Court ruled in favor of the employee and denied the corporate successor’s emergency motion because there was no standing to enforce the provisions of the non-compete agreement. The corporate successor then appealed.

In Magner, a Connecticut based corporation was in the process of a corporate reorganization and separation. Originally, the corporation contained two divisions, a domestic division and an international division.  As a part of the Reorganization Plan, all of the assets from the international division were transferred to the newly organized Florida corporation. Since the original non-compete agreement specifically stated that the Employment Agreement “shall be interpreted and enforced in accordance with the laws of the State of Connecticut,” the Florida courts applied Connecticut law. Under Connecticut law, non-compete agreements may be assigned upon the sale of a business or automatically assigned where the entire business is sold to another entity. The reason being that an employee’s covenant not to compete is “an assignable asset of the employer.”