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Articles Posted in Non-Compete Agreements

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Noncompete agreements sometimes designate the laws of other states to govern the parties’ contractual obligations, even if the agreement is made in Florida. This is known as a choice of law provision. When these choice-of-law provisions are valid and enforceable, they can have significant repercussions on the results of noncompete litigation.  Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation, employment litigation, trademark litigation, and other legal disputes in federal and state courts and in arbitration.

Many corporations and limited liability companies throughout the United States are incorporated or organized under Delaware law, even though they may have no particular connection to Delaware.  This is because there are several benefits that medium to large sized business can enjoy from Delaware incorporation.  For example, intra-corporate disputes for Delaware corporations are adjudicated by the Delaware Court of Chancery which is a judicial body designed to quickly and effectively resolve such matters without a jury.  Because of the attractiveness of Delaware incorporation, many corporations will often choose Delaware as a choice of law in their contracts.  As a result, Florida courts will often adjudicate disputes under Delaware law.

When applying foreign law in Florida, courts “maintains the traditional distinction between substantive and procedural matters.”  Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006).  “Generally, when confronted by a choice of law problem, a court will apply foreign law when it deals with the substance of the case and will apply the forum’s law to matters of procedure.”  Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006).  This can be a critical issue when employers seek injunctions in non-compete matters.  Florida courts will apply Florida law as it relates to the procedural issues, such as whether a temporary injunction should be issued, and foreign choice of law for the substantive law questions associated with that analysis, such as the element of whether there is a likelihood of success on the merits.

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Florida employers who seek to protect their client lists from misappropriation by former employees will often need to show that the client list was a trade secret.  This is important even when the former employee is subject to a non-compete agreement.  This is because non-compete agreements cannot be enforced without a “legitimate business interest,” and the existence of a trade secret qualifies as a “legitimate business interest.”  Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation, employment litigation, trademark litigation, and other legal disputes in federal and state courts and in arbitration.

A non-compete agreement cannot be enforced without a court finding that the agreement is supported by a “legitimate business interest” in the non-compete agreement.  Importantly, the existence of a trade secret can qualify as a legitimate business interest pursuant to Florida’s noncompete law.  Trade secrets are specifically delineated as legitimate business interests in Section 542.335(1)(b)(1), Florida Statutes.

The term “trade secret” is often associated with secret formulas like the ingredients of Coca-Cola or WD-40.  However, nearly any type of information can qualify as a trade secret as long as it qualifies as one under either the Florida Uniform Trade Secrets Act (FUTSA) or the federal Defend Trade Secrets Act (DTSA).  Particularly, FUTSA defines trade secrets as:

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Companies often hire experienced sales and business development professionals to expand their business. A non-solicitation provision in an employment contract is intended to prevent post-termination solicitation of clients with whom the business has substantial relationships. When an employee brings clients to a company, it is important to distinguish whether the employee had a prior business or personal relationship with the client, and whether it is part of the employee’s job to develop and maintain client relationships. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation,  employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of Hilb Rogal & Hobbs of Florida, Inc. v. Grimmel, 48 So. 3d 957 (Fla. 4th DCA 2010), Hilb Rogal & Hobbs of Florida, Inc. (HRH) was an insurance broker who hired Mark Grimmel (Grimmel) as a producer to service its existing customers and to generate new customers. Grimmel signed an employment agreement with HRH, which included a non-piracy clause that prohibited Grimmel from soliciting HRH’s customers following termination of his employment. Four years after Grimmel resigned to operate his own competing insurance brokerage firm, Egis Insurance Advisors (Egis).

HRH filed a lawsuit for injunctive relief and damages against Grimmel and Egis. HRH alleged that Grimmel violated the non-piracy covenant in his employment agreement with HRH by misappropriating business from HRH to Egis. HRH also filed an emergency motion for a temporary injunction, requesting that the court prohibit Grimmel from soliciting, accepting business from, and continuing to do business with HRH’s customers. Also, HRH sought to enjoin Grimmel from using confidential or trade secret information. HRH obtained an ex-parte order (made without the other party’s awareness) granting a temporary injunction against Grimmel and posted a bond. Grimmel moved to dissolve the injunction and a hearing was held before a magistrate. The magistrate issued a Report and Recommendation proposing that the temporary injunction be dissolved. HRH filed its exceptions to the general magistrate’s report and requested a hearing. The trial court held a hearing and entered an order denying HRH’s exceptions, granting the motion to dissolve the temporary injunction, and ratifying and approving the general magistrate’s Report and Recommendation. HRH immediately appealed.

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When the wording of a contractual provision is confusing or ambiguous, courts must interpret the contract in a rational manner. Some examples of vague contractual provisions include, “during business hours” and time frames with no clear anchor date, i.e. “within six months of commencement.” The courts generally agree that where one interpretation of a contract would be absurd and another would be consistent with reason and probability, the contract should be interpreted in the rational manner. American Med. Int’l, Inc. v. Scheller, 462 So.2d 1 (Fla. 4th DCA 1984). Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach.  The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

In the case of BKD Twenty-One Mgmt. Co. v. Delsordo, the appellate court addressed the interpretation of a lease agreement.  At the center of the business litigation was a dispute over the meaning of the term “Establishment.” The plaintiff contended that the term “Establishment” meant “ruling class” or “controlling group” and therefore referred to “the folks running the retirement community.” The defendants contended that “Establishment” meant “place of business.” The appellate court agree with the defendants’ interpretation. BKD Twenty-One Mgmt. Co. v. Delsordo held that “…where one interpretation of a contract would be absurd and another would be consistent with reason and probability, the contract should be interpreted in the rational manner.” The appellate court held that in the context of a commercial lease agreement, the term “Establishment” necessarily meant “an institution or place of business.” Even though there are other definitions of the term “establishment,” the appellate court found that none of those alternative definitions would make sense in for a lease agreement concerning a business. Courts must consider the contractual provision within the context of the overall contract.  The appellate court rejected plaintiff’s argument that the capitalization of the term “Establishment” in the lease meant that the term was referring to a “ruling class” or “the folks running the retirement community.” There were many key terms in the lease were capitalized, so the appellate court held that the capitalization of the term Establishment in the contract did not mean that the contract was referring to the “ruling class.”

“A true ambiguity does not exist merely because a contract can possibly be interpreted in more than one manner. Indeed, fanciful, inconsistent, and absurd interpretations of plain language are always possible.” American Med. Int’l, Inc. v. Scheller. It is the duty of the trial court presiding over business litigation to prevent such interpretations. For example, in the case of Sorota v. Belmat, Inc., 819 So. 2d 975 (Fla. 4th DCA 2002), the contract stated that the tenant was responsible for paying the utilities it uses in connection with the leased premises, but only its pro-rata share of those charges. The appellate court held that though it was not spelled out in the agreement, it was clear that by “pro-rata share” of the bill, the drafters intended that the tenant pay only for those utilities it actually used. The appellate court concluded that no other interpretation would make sense. Sorota v. Belmat, Inc. held that “contracts should be interpreted so as to avoid an absurd result.”

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This article is the second of a two-part series concerning the enforcement of noncompete agreements when the former employee claims that his former employer engaged in illegal conduct.  Part I explored the enforceability of contracts which contain illegal terms.  This, Part II, addresses how allegations of illegal conduct can affect noncompete agreements particularly.  As shown below, illegal conduct does not negate the enforcement of a noncompete agreement when unless the “legitimate business interest” supporting the noncompete agreement was illegal or there was a sufficient public policy reason to not enforce the noncompete agreement.  Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation,  employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

Noncompete agreements are contracts and are affected by all of the general principles of contract law.  However, noncompete agreements are a unique type of contract which has special provisions governing it.  Generally, noncompete agreements are unlawful unless they comply with the requirements listed in § 542.335, Florida Statutes.  Particularly, a “person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.”  § 542.335(b), Florida Statutes.  The statute specifically describes that “trade secrets,” “valuable confidential business […] information,” “substantial relationships with specific prospective or existing customers,” “customer […] goodwill” associated with the sale of a business or a particular geographical or market area,” and “extraordinary or specialized training.”  § 542.335 (1)-(5), Florida Statutes.  While the vast majority of cases involve these particular categories of “legitimate business interests,” courts will consider other types of legitimate business interests which are not listed.  White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, 226 So.3d 774 (Fla. 2017) (holding that referral sources may be legitimate business interests even though they are not listed in § 542.335).

The phrase “legitimate business interest” may sound as if the business seeking to enforce the noncompete agreement must be a “legitimate business.”  This is not the way that the statute is worded nor how cases interpret it.  Instead, the concern is whether there is a legitimate business interest in enforcement of the noncompete, specifically.  § 542.335(c), Florida Statutes (“A person seeking enforcement of a restrictive covenant also shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction”).

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Former employees who are accused of breaching their noncompete agreements with their former employer sometimes try to claim that the former employer engaged in illegal conduct, and thus, a noncompete agreement cannot be enforced.  While there are certain types of unlawful conduct which a court may cite to justify the denial of request for a temporary injunction, the range of illegal conduct which would justify such a denial is very narrow.  Most allegations of illegal conduct will not influence whether a restrictive covenant should be enforced, even if the allegations are true.  This article is the first of a two-part series.  This article addresses contracts which are unenforceable because they are unlawful, while the second article addresses allegations of unlawful activity within the context of a noncompete agreement.  Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach.  The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, employment litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Often, parties defending against business litigation will use everything at their disposal to influence their opponent into giving up.  This can include making allegations of illegal conduct to argue that a noncompete agreement is unenforceable.  Generally, Florida companies may enforce their contracts regardless if they have also performed an “illegal” action.

A contract which is itself illegal, however, is usually unenforceable.  “[A] party generally may not seek to enforce an illegal contract.”  P.C.B. P’ship v. City of Largo, 549 So. 2d 738 (Fla. 2d DCA 1989); Harris v. Gonzalez, 789 So. 2d 405 (Fla. 4th DCA 2001) (“A contract which violates a provision of the constitution or a statute is void and illegal, and, will not be enforced in our courts”).

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A non-compete period may not be tolled because an employee is called for active military duty. While an employee may not be denied reemployment on account of a person’s performance of military duty, under the Uniformed Services Employment and Reemployment Rights Act of 1994, 38 U.S.C. § 4311, a court may consider the fact that the employee was not competing when serving his or her military duties. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation,  employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this circumstance occurred in the case of SCI Funeral Services of Florida, Inc. v. Henry, 839 So. 2d 702 (Fla. 3d DCA 2002). Anel Henry (Henry) was employed by SCI Funeral Services of Florida, Inc. (SCI) as a sales department group leader. He signed a non-compete agreement with SCI, which prohibited him from competing with SCI for a period of twelve months after his employment had been terminated for any reason, with or without cause. Henry later became the subject of SCI’s investigation of a sexual harassment claim. SCI temporarily suspended his employment while they conducted their investigation. Henry was also on reserve duty with the United States Army.  During the suspension, he was called up for military service in Panama. Henry received a phone call from a SCI employee to warn him that SCI’s sales manager was terminating his employment.

Henry received orders from the Army extended his tour of duty to total about one year. After Henry returned from service in Panama, he requested to resume employment, but SCI refused. Henry then applied for work with Woodlawn Park Cemetery Company (Woodlawn), a competitor of SCI. Woodlawn offered Henry a job, which would begin in the following month. SCI’s counsel sent a letter to the Henry, with a copy to Woodlawn, that threatened a lawsuit for violation of the non-compete agreement.  SCI contended that SCI did not formally terminate Henry until his return from military duty, therefore the twelve-month period began when he came back from Panama rather than when he left about twelve months earlier. Woodlawn terminated Henry’s employment due SCI’s threats to enforce the non-compete agreement. SCI, however, never filed suit to enforce the non-compete agreement.

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Section 542.335 of the Florida Statutes permits non-compete agreements arising from: a) the sale of a business, b) an employment, agency, or independent contractor relationship, c) a licensing relationship, or d) a partnership. Contracts that restrain one from exercising a lawful profession, trade, or business, and that do not fall within the exceptions of the statute are generally void.  However, when void non-compete agreement has been incorporated into a final judgment, it may still be enforceable.  Peter Mavrick is a Miami non-compete attorney, and also advocates for clients in Fort Lauderdale, Boca Raton, and Palm Beach, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation,  employment litigationtrademark litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this circumstance occurred in the case of Miller v. Preefer, 1 So. 3d 1278 (Fla. 4th DCA 2009). John W. Miller (Miller) owned and operated numerous restaurant and bar establishments under the “Ale House” name. Miller and nine associated companies filed a lawsuit against Jay Preefer, Richard Preefer, Jay Starr, and other associated companies (Preefer defendants). Miller’s lawsuit against Preefer defendants alleged trademark and service mark infringement based on Preefer defendants’ use of the name “Ale House.” Miller also alleged that Preefer defendants engaged in a pattern of unfair competition by registering various corporate names that included the words “Ale House,” and by utilizing Miller’s business model and menus.

The parties settled the lawsuit and entered a mediated settlement agreement. The parties agreed, among other things, on a non-compete provision that prohibited Miller from conducting a related restaurant business within a specific geographical area of Palm Beach County, Florida for fifty years. The trial court dismissed the lawsuit with prejudice as to all claims. The trial court entered a final judgment of dismissal which incorporated the settlement agreement. Jay Preefer sued Miller and alleged violations of the settlement agreement. Miller filed a counterclaim seeking a declaratory judgment finding that the non-compete was unenforceable. The parties settled the lawsuit and Miller’s counterclaim was dismissed without prejudice (meaning it can be refiled).

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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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