Articles Posted in Non-Compete Agreements

Published on: November 19, 2023

MIAMI BUSINESS LITIGATION: POACHING CUSTOMERS WHEN THERE IS NO NON-COMPETE AGREEMENT

Florida’s non-compete statute, Section 542.335, Florida Statutes, accords broad protection in favor of a business seeking to prevent former employees from competing with the business via goodwill with customers with whom the former employee dealt during his employment. In this regard, section 542.335(1)(b)(3) expressly considers a “legitimate business interest” to include “[s]ubstantial relationships with specific prospective or existing customers, patients, or clients.” Under Florida law, however, in the absence of a non-soliciation agreement or non-compete agreement, a former employee cannot be precluded from using contacts and expertise he gained from employment with his former employer. Businesses have sometimes tried to bar former employees from competing for customers when the employee never even signed a non-compete or non-soliciation agreement. In such cases, businesses have argued that the customers are part of a “trade secret” and are confidential. Florida’s Second District Court of Appeal, in Templeton v. Creative Loafing Tampa, Inc., 552 So.2d 288 (Fla. 2d DCA 1989), held in pertinent part that: “The only arguably secret information on the advertiser list was the contact person. However, the testimony shows that appellant knows all of these persons on a first name basis as a result of his experience working for Music and that he did not need a secret list to enable him to ascertain their identity. Appellant cannot be precluded from utilizing contacts and expertise gained during his former employment.” Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Florida appellate courts distinguish between customer lists that are the product of great expense and effort, that are distillations of larger lists, or include information that is not available from public sources. Under appropriate circumstances, such customer lists can qualify as trade secrets. However, an employee’s mental knowledge of customer relationships, as per prior employment, generally will not qualify for protection as a trade secret. Precedent from the Supreme Court of Florida, in Pure Foods, Inc. v. Sir Sirloin, Inc., 84 So.2d 51 (Fla. 1956), stated in pertinent part: “We do not think the circumstances in this case justify further exploration of the law on that subject or a condemnation of appellee’s erstwhile employees because they undertook to sell to customers whom they had come to know during their former employment. Both corporations were wholesalers and their products were sold to retailers of food such as restaurants and ‘drive-ins.’ Certainly, the names of such concerns were easily obtainable from classified telephone directories and like sources, and surely the employees of appellee who became owners of an interest in the appellant-corporation could not be precluded from attempting to sell all customers whom they had known in their former positions.” Florida’s Fifth District Court of Appeal, in Fish v. Adams 401 So.2d 843 (Fla. 5th DCA 1981), has taken these legal principles a step further, explaining that “an employee may take with him a customer list he himself has developed.” How broadly courts will interpret this wording from Fish v. Adams will likely depend on the factual details, including how intricate and valuable was the customer list the employee took and used after leaving his employment with the business. It is important to emphasize that when the employer-employee relationship does not include a restrictive covenant barring competition or solicitation, it can be an uphill battle to bar an employee’s dealing with his former employer’s customers.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.

Published on: November 1, 2023

FORT LAUDERDALE BUSINESS LITIGATION: NON-COMPETE AGREEMENTS AND THE LEGAL DOCTRINE OF THE “BLUE-PENCIL”

By Mavrick Law Firm

The plain terms of a contract control the parties’ course of conduct for all matters subject to that contract’s terms. See Maher v. Schumacher, 605 So.2d 481 (Fla. 3d DCA 1992) (holding that the plain meaning of the contractual language used by the parties controls). The Court is prohibited from rewriting contract terms. Pol v. Pol, 705 So. 2d 51, 53 (Fla. 3d DCA 1997) (“It is well established that a court cannot rewrite the clear and unambiguous terms of a voluntary contract.”). However, non-complete law contains a powerful exception allowing courts to disregard the well- pronounced prohibition against rewriting contracts. Courts can “blue-pencil” (i.e., Judicially modify) provisions of non-compete agreements when they do not conform to the requirements of Florida’s restrictive covenant statute, Section 542.335, Florida Statutes. In doing so, blue pencil laws breathe life into an otherwise invalid contractual provision. The blue pencil exception can be an important tool for those attempting to obtain relief under a contractual provision that violates the restrictive covenant statute. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

A court’s ability to “blue-pencil” a restrictive covenant is limited to modifying the scope of the provision to bring it within the ambit of non-compete law. See White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, 226 So. 3d 774 (Fla. 2017) (Courts are commanded to “modify, or blue pencil, a non-competition agreement that is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest.”). The court can only narrow a restrictive covenant to the extent needed to protect the plaintiff’s established legitimate business interests. Id. (noting that courts can modify overbroad restrictive covenants to “grant only the relief reasonably necessary to protect such interest”). Courts can shorten a restrictive covenant that is too long in duration, may curtail the geographical scope to a more limited area, or may constrain the subject matter to particular legitimate business interests. Id.

Blue penciling laws can create perverse incentives for employers and similarly situated parties to draft overbroad provisions they know have little chance of being enforceable. Employers may force their employees to agree to overbroad restrictive covenants to intimidate employees and make them believe they cannot compete in any respect. Employers may believe there is little risk in drafting an overbroad restrictive provision because a court will probably blue-pencil the provision if enforcement is necessary. Therefore, employers could face little risk in purposefully drafting an onerous overbroad restrictive covenant.

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Published on: October 25, 2023

FORT LAUDERDALE BUSINESS LITIGATION: NON-COMPETE AGREEMENTS AND CHOICE OF LAW PROVISIONS

By Mavrick Law Firm

Corporations routinely require their employees to enter restrictive covenants (including non-solicition and non-compete agreements) protecting the business from unfair competition. However, employees often live and reside in states that are different from the company’s place of incorporation and principal place of business. This trend has grown in recent years as some companies have moved toward a fully remote work environment. The corporation’s ability to enforce its restrictive covenants may be hampered or become more complicated where state laws governing enforcement of restrictive covenants vary. This article explores a sampling of contradictory restrictive covenant laws and how one might address those contradictions upfront to help ensure a restrictive covenant agreement remains enforceable. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Some states, like Florida, have strong restrictive covenant laws codified by statute. Florida permits non-compete agreements when they are supported by one or more “legitimate business interests” and reasonable in time and scope to protect the business. See Fla. Stat. § 542.335 (“The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.”). Other states, like Pennsylvania, rely on caselaw to enforce restrictive covenants. See, e.g., Socko v. Mid-Atl. Sys. of CPA, Inc., 2014 PA Super 103, 99 A.3d 928, 935 (2014), aff’d, 633 Pa. 555, 126 A.3d 1266 (Penn. 2015) (permitting enforcement of a restrictive convent when the employee “receive[s] actual valuable consideration” and the restriction is reasonably limited in time and territory). Application of case law can be amorphous thereby making it more difficult to enforce the covenant or predict outcomes. See Insulation Corp. of Am. v. Brobston, 446 Pa. Super. 520, 529, 667 A.2d 729, 733 (Penn. 1995) (adding more stringent requirements to enforce a post-employment restrictive covenant). Yet other states like Minnesota prohibit enforcement of most restrictive covenant agreements. Minn. Stat. Ann. § 181.988 (“Any covenant not to compete contained in a contract or agreement is void and unenforceable”).

Companies can insert choice of law provisions in their restrictive covenant agreements to provide some definiteness as to which state’s laws apply. These provisions pre-select the application of a particular state’s laws, usually to the exclusion of all other state laws. Choice of law provisions, however, are not always enforceable. For example, in Florida, a choice of law provision will not be enforced when its application would violate Florida’s public policy. In Snelling & Snelling, Inc. v. Reynolds, 140 F. Supp. 2d 1314 (M.D. Fla. 2001), the United States District Court for the Middle District of Florida analyzed a restrictive covenant that selected Pennsylvania as the governing law. The court explained that, “[s]ince Snelling has indicated its intention for the governing law, Pennsylvania law will govern the dispute between the parties, as long as that law is not against the public policy of the forum state.” Florida courts analyze the laws of the chosen state as contrasted against Florida law, to determine whether the laws of both states contradict each other. Snelling explained that the court “must determine whether Pennsylvania law governing non-compete covenants is contrary to Florida’s public policy.” If a contradiction exists, further analysis would be conducted to determine whether there is a violation of Florida’s public policy. Other states may construe choice of law provisions differently or enforce them differently.

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Published on: October 22, 2023

MIAMI BUSINESS LITIGATION: STATUTE OF LIMITATIONS OF NON-COMPETE CLAIMS IN ARBITRATION

By Mavrick Law Firm

Florida Statutes Section 95.11(2)(b) states in pertinent part that, “[a] legal action on an action on a contract, obligation, or liability founded on a written instrument” is five years. This statute of limitations governs breach of written contracts in business litigation. Florida law imposes a type of “statute of frauds” in cases involving non-compete contracts, because Florida Statutes Section 542.335(1)(a) states that “[a] court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought.” Issues concerning statutes of limitations sometimes arise in arbitration proceedings, which are legally sanctioned proceedings involving private judges with the consent of the parties. In such proceedings, arbitrators sometimes do not follow the law. Unlike the decisions made by state and federal trial courts, decisions made in arbitration often are not reviewable in appellate courts. Indeed, some arbitration companies have expanded “private” statutes of limitation that exceed the limits of Florida law. The question arises, when Florida law governs the parties’ contract, can an arbitrator lawfully refuse to abide by the statute of limitations concerning cases of breach of a written contract, including a non-compete contract? Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

Precedent from the Supreme Court of Florida, in Raymond James Financial Services, Inc. v. Phillips, 126 So.3d 186 (Fla. 2013), has addressed this question in the context of a tort claim before the National Association of Securities Dealers. In Raymond James, an investment firm required its clients (the investors) to sign an agreement to arbitrate all disputes arising out of the handling of their investments. The issue in the case was not the validity of the arbitration agreement, but rather whether Florida’s statute of limitations that is applicable to a “civil action or proceeding” applies to arbitration proceedings. The investors asserted that the statute of limitations applied only to judicial actions and thus did not limit the time in which to assert their arbitration claims. The Supreme Court of Florida held that the term “proceeding” as used in the statutory provision that barred any proceeding unless begun within the applicable statute of limitations, was a broad term that encompassed arbitration proceedings.

The Supreme Court’s Raymond James decision imposed an important check on arbitration proceedings, which are usually given leeway to make decisions without significant judicial review. The Raymond James decision relied on Black’s Law Dictionary, which defines a “tribunal” as a “[c]ourt or other adjudicatory body.” The Supreme Court explained in pertinent part: “The term adjudicatory refers back to adjudication, which is defined as both ‘[t]he legal process of resolving a dispute,’ as well as ‘the process of judicially deciding a case’…In addition, an arbitrator would fall under the definition of an adjudicator, which Black’s Law Dictionary defines as ‘[a] person whose job is to render binding decisions’…Arbitration is clearly within the meaning of the term adjudication since the parties to an arbitration are engaging ‘[t]he legal process of resolving a dispute’ by seeking redress from an ‘adjudicatory body.’ Moreover, an arbitrator is an adjudicator who has the authority and obligation to render a binding decision and resolve the parties’ dispute. Accordingly, a review of the common usage of the terms uses…supports our conclusion that the term ‘proceeding’ as used in section 95.011 [Florida Statutes], is a broad term that includes arbitration.”

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Published on: October 5, 2023

FORT LAUDERDALE BUSINESS LITIGATION: CUSTOMER LISTS AND TRADE SECRETS

By Mavrick Law Firm

Some businesses have experienced loss of customer relationships due to former employees taking customer relationships to competitors. The most obvious way to protect against such a situation is to ensure employees sign a restrictive covenant under Florida Statutes Section 542.335, commonly referred to as a non-compete agreement, prohibiting solicitation of customers and competition that diverts the employer’s customers to a competitor. Sometimes, however, businesses do not have a non-compete agreement with their employees. The law of trade secrets can be used, under certain circumstances, to bar use of confidential information, including customer lists, to divert customers to competitors. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida’s Second District Court of Appeal, in East v. Aqua Gaming, 805 So.2d 932 (Fla. 2d DCA 2001), explained what is required to prove a customer list is a trade secret. To qualify as a trade secret, there must be evidence that a customer list “was the product of great expense and effort, that it included information that was confidential and not available from public sources, and that it was distilled from larger lists of potential customers into a list of viable customers for [a] unique business.” Customer lists can constitute trade secrets where the lists are acquired or complied through the industry of the owner of the lists and are not just a compilation of information commonly available to the public.

In trade secret litigation, it is often a major issue whether the alleged trade secret owner took appropriate measures to keep the the subject information a secret. Under Florida’s trade secret statute, section 688.002(4)(b), a trade secret owner must make “efforts that are reasonable under the circumstances to maintain its secrecy.” As to this issue, Florida and federal courts will often look at whether the alleged trade secret owner had signed agreements with its employees to protect the company information. In My Energy Monster, Inc. v. Gawrych, 2020 WL 8224616 (M.D. Fla. 12/18/2020), the federal court faulted the business that owned the alleged trade secret for not taking better measures to protect its trade secrets, and stated in pertinent part: “However, the record demonstrates that Gawrych was not required to sign a non-compete agreement, non-solicitation agreement, nor a confidentiality agreement and that non existed for other Energy Monster employees. According to Defendants, all employees at Energy Monster had access to the customer list…Defendants, further state that [t]here [were] no ‘need to know’ employees and Energy Monster never obtained nondisclosure agreements or confidentiality agreements–even after the parties parted ways and Gawrych offered to sign an NDA…Yet Energy Monster seeks to prevent the very action that such agreements are typically designed to prevent.”

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Published on: September 13, 2023

FORT LAUDERDALE NON-COMPETE AGREEMENTS: LEGITIMATE BUSINESS INTERESTS AND UNFAIR COMPETITION

By Mavrick Law Firm

The Sherman Anti-Trust Act prohibits conspiracies unreasonably restraining trade. A group of competitors cannot enter agreements fixing prices or wages; rigging bids; or allocating customers, workers, or markets. 15 U.S.C. § 1. Consequently, exclusivity contracts and other restrictive covenants reducing competition may violate the Sherman Antitrust Act if they are solely intended to prevent ordinary competition. The Supreme Court of Florida, in White v. Mederi Caretenders Visting Servs., 226 So.3d 744 (Fla. 2017), explained that “[c]ovenants whose sole purpose is to prevent competition per se are void against public policy.” In addition, Florida Statutes Section 542.18 states that, “[e]very contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful.” In the the White decision, the Supreme Court explained Florida courts will enforce non-compete agreements only to the extent they prevent unfair competition, that is, “there [are] special facts present over and above ordinary competition’ such that, absent a non-competition agreement, the employee would gain an unfair advantage in future competition with the employer.” The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

This is why Florida’s non-compete statute, Section 542.335, Florida Statutes, requires that non-compete covenants be supported by a legitimate business interest. Fla. Stat. § 542.335 (“Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.”); see also Tri-Cont’l Fin. Corp. v. Tropical Marine Enterprises, Inc., 265 F. 2d 619 (5th Cir. 1959) (“Measured by rules governing such ancillary agreements, the covenant, limited as it is in time and in scope, is, in every respect important here, reasonable in time, territory and extent, and of no further extent than is necessary to protect West India; and that the authorities are almost uniform that such a restriction does not violate the anti-trust laws”).

Florida’s restrictive covenant statute provides a non-exhaustive list of legitimate business interests. The statute specifically references protection of trade secrets, confidential information that does not qualify as trade secret, relationships with existing customers, and relationships with specific prospective customers. Following the statutory requirement to establish a “legitimate busiess interest” to enforce a non-compete agreement, the United States District Court for the Southern District of Florida in Autonation, Inc. v. O’Brien, 347 F. Supp. 2d 1299 (S.D. Fla. 2004), held that “AutoNation… established legitimate business interests justifying the enforcement of [the]… Non–Compete Agreement [because t]he testimony and evidence submitted… demonstrated [the defendant] was exposed to confidential and proprietary information.” Similarly, Florida’s Fourth District Court of Appeal in Hilb Rogal & Hobbs of Florida, Inc. v. Grimmel, 48 So. 3d 957 (Fla. 4th DCA 2010), stated that “HRH proved that it had a legitimate business interest in its substantial relationships with specific existing customers; that the restrictive covenant prohibiting the piracy of those customers was no broader than necessary to protect that interest.” In the White decision, the Supreme Court of Florida held that referral sources also can qualify as a legitimate business interest under the statute. White explained that, “Section 542.335… is non-exhaustive and does not preclude the protection of referral sources; hence, home health service referrals may be a protected legitimate business interests depending on the context and proof adduced.”

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Published on: August 24, 2023

FORT LAUDERDALE BUSINESS LITIGATION: EQUITABLE TOLLING OF STATUTE OF LIMITATIONS FOR NON-COMPETE AGREEMENTS

By Mavrick Law Firm

The expiration of a non-compete period does not necessarily mean the covenant is unenforceable. A former employer may be able to enforce a non-compete against a former employee if the non-compete period expired and the non-compete period was tolled by the former employee’s violation of his restrictive covenant. Restrictive covenants, like non-compete agreements and non-solicitation agreements, must be reasonable in time as a general matter. Non-compete statutes often contain durational periods a restrictive covenant is considered reasonable and unreadable. The enforceable durations are usually based on the relationship between the obligor and obligee. In Florida, courts presume a restraint that is six months or less reasonable if the obligor is an employee and the obligee is an employer. Fla. Stat. § 542.335. The same statute dictates that a restrictive covenant between an employee and employer is presumptively unreasonable after two years. The presumptive enforceable duration increases if the obligor sold his business to the obligee. In that case, a court presumes a restrictive to be reasonable if is three years or less and unreasonable it if is more than seven years. Therefore, restrictive covenants usually contain a provision expressly stating their enforceable duration to ensure compliance with the reasonableness standard and statutory corresponding presumptions. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

But what happens when a former employer discovers his or her former employee breached the restrictive covenant (during the restrictive period) after the covenant lapses? Can the covenant still be enforced? The answer is – probably if your state applies the equitable tolling doctrine to restrictive covenants. This doctrine allows the obligor to enforce a restrictive covenant against the obligee after the restrictive period lapses if the obligee breached the covenant during the restrictive period. For example, precedent from Florida’s Fourth District Court of Appeal in Orkin Exterminating Co., Inc. v. Bailey, 550 So. 2d 563 (Fla. 4th DCA 1989), held that “Appellant is entitled to the full duration of the two-year restriction.” The rationale supporting equitable tolling is fairness. In this vein, Florida’s Fourth District Court of Appeal, in Anakarli Boutique, Inc. v. Ortiz, 152 So. 3d 107, 109 (Fla. 4th DCA 2014, explained that “[i]t would be stunningly unfair if the law held that a valid non-compete clause could be nullified because the non-compete period was devoured by the time it took to appeal an erroneous ruling on the interpretation of the clause.” The obligor is entitled to the benefit of what he or she bargained for under the contract, i.e., a prohibition against certain competitive conduct for a limited duration. Capelouto v. Orkin Exterminating Co. of Fla., Inc., 183 So. 2d 532, 534 (Fla. 1966) (“Inasmuch as the appellant had been in competition with the appellee continuously since his resignation, the chancellor must have determined that this was the only way to give the appellee its two competition-free years.”).

All states do not permit equitable tolling because courts are generally prohibited from rewriting private contracts. See Coffee Sys. of Atlanta v. Fox, 227 Ga. 602, 602, 182 S.E.2d 109 (1971) (“The litigation did not toll the one year period so as to provide additional time for enjoining the employe [sic] [because s]uch an extension would in effect rewrite the one year feature of the agreement. Courts do not make contracts for the parties.”). In these states, it is important to include a tolling provision inside the contract. Including this provision could allow a former employer to toll a restrictive covenant post violation even if the state’s common law does not allow for equitable tolling because the parties expressly bargained for tolling. See Gaylord Broad. Co. v. Cosmos Broad. Corp., 746 F.2d 251 (5th Cir. 1984) (“The parties may contractually provide for the tolling of the noncompetition period, if an employee breaches a covenant not to compete and the resulting civil proceedings to enforce the covenant consume more time than the period of the covenant itself.”).

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Published on: August 17, 2023

FORT LAUDERDALE BUSINESS LITIGATION: FLORIDA TRADE SECRETS CLAIMS PREEMPTION

By Mavrick Law Firm

Florida employers who have non-compete agreements may enforce the restrictive covenants based on the legitimate business interest of trade secrets under Florida Statutes Section 542.335(1)(b)(1). Employers may also sue for misappropriation of trade secrets. However, employers sometimes sue former employees for common law claims that are related to misappropriation of company trade secrets. Such common law claims have sometimes faced roadblocks because many state law trade secret statutes preempt or displace all other non-contract claims arising from the trade secret misappropriation. Florida’s trade secret statute, like many others, preempts all potential claims arising from the unauthorized use of a trade secret unless the claim sounds in contract. Fla. Stat. § 688.008 (The Uniform Trade Secrets Act “displace[s] conflicting tort, restitutory, and other law of this state providing civil remedies for misappropriation of a trade secret [except]… contractual remedies”). Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Florida’s Third District Court of Appeal in Digiport, Inc. v. Foram Dev. BFC, LLC, 314 So. 3d 550 (Fla. 3d DCA 2020), provided an analysis of Florida law trade secret preemption. Digiport explained that Florida courts look to the facts alleged in the complaint to determine whether “there are material distinctions between the allegations comprising the additional torts and the allegations supporting the [trade secret claim].” The appellate court determined the plaintiff’s claims were preempted because they were premised on the same allegations and elements as its trade secret claims, stating “[b]oth the trade secret misappropriation claim and the misappropriation of a business idea count are premised upon allegations that [the plaintiff] invested substantial time in creating a novel business idea, the idea was disclosed to [the defendant] in confidence, reasonable measures to protect the secrecy were undertaken, and [the defendant] misappropriated the idea by disclosing its plans to other companies for its own benefit.” Conversely, courts allow claims affiliated with trade secrets to proceed if trade secret misappropriation does not alone comprise the underlying wrong. For example, in Mortgage Now, Inc. v. Stone, 2009 WL 4262877 (N.D. Fla. Nov. 24, 2009), the United States District Court for the Northern District of Florida allowed a claim of civil conspiracy to proceed because the defendant’s acts were unrelated to the misappropriation of trade secrets.

Preemption is a powerful tool that may apply to claims involving the use of information that does not qualify as a trade secret. K3 Enterprises, Inc. Saspwski, 2021 WL 8363506 *9 (S.D. Fla. Nov. 19, 2021), explained that, “[a]ccording to the majority view, non-FUTSA, non-contractual civil misappropriation claims do constitute conflicting law under Florida Statute § 688.008(1) and are preempted at the motion to dismiss stage.”) (internal quotations omitted). Similarly, another federal district court in American Registry, LLC v. Hanaw, 2014 WL 12606501, *6 (M.D. Fla. July 16, 2014), stated in pertinent part that, “[t]he Court finds that the FUTSA preempts all non-contract claims based on the misappropriation of confidential and/or commercially valuable information even if the information does not constitute a trade secret under the FUTSA.”

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Published on: August 6, 2023

MIAMI BUSINESS LITIGATION: WHERE VIOLATIONS OF NON-COMPETE AGREEMENTS CAUSE DEMISE OF A BUSINESS

By Mavrick Law Firm

A former employee cannot avoid non-compete obligations by causing the demise of the business to whom he or she owes the obligation. Florida law requires the business that intends to enforce the restrictive covenant to establish a legitimate business interest justifying the restriction. Florida Statutes Section 542.335(c) states in pertinent part that, “[a] person seeking enforcement of a restrictive covenant…shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.” Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

These “legitimate interests” include trade secrets; valuable confidential business or professional information that otherwise does not qualify as trade secrets; substantial relationships with specific prospective or existing customers; extraordinary or specialized training; and customer goodwill associated with an ongoing business, trade name, trademark, service mark, “trade dress,” a specific geographic location, or a specific marketing area. Once a former employer satisfies his burden of establishing that the covenant is supported by the existence of one or more legitimate business interests, the party refusing to comply has the burden of demonstrating the restraint is “overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.”

Some former employees caught red-handed violating their non-compete agreements have tried to justify their actions by contending the court should not enforce a non-compete when the former employer’s business is no longer operational. See USI Ins. Services of Florida Inc. v. Pettineo, 987 So. 2d 763, 766 (Fla. 4th DCA 2008) (“Section 542.335, however, allows an enforcing party to establish prima facie the enforceability of the agreement itself, after which the party opposing enforcement can raise “as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant”). This argument can be effective when the business ended for reasons having nothing to do with the violations of the non-compete covenant. For example, the United States District Court for the Southern District of Florida, in Chen v. Cayman Arts, Inc., 2011 WL 3903158 (S.D. Fla. Sept. 6, 2011), refused to enforce a restrictive covenant because the plaintiff employer “has not suggested any reason that its purported trade secrets remain a legitimate business interest following [the plaintiff’s] dissolution.”). Similarly, in Wolf v. James G. Barrie, P.A., 858 So. 2d 1083 (Fla. 2d DCA 2003), Florida’s Second District Court of Appeal stated explained that enforcement of a restrictive covenant “requires that the employer must be engaged in the business that the covenant seeks to protect.”

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Published on: July 16, 2023

MIAMI BUSINESS LITIGATION: NON-COMPETE AGREEMENTS BASED ON CONFIDENTIAL INFORMATION

By Mavrick Law Firm

Under Florida law, restrictive covenants are generally unenforceable under Florida law as restraints on trade. Section 541.18, Florida Statutes, states that “[e]very contract, combination or conspiracy in restrain of trade or commerce in this state is unlawful.” Precedent from the Supreme Court of Florida in White v. Mederi Caretenders Visiting Servs. of Se. Fla, LLC, 226 So.3d 774 (Fla. 2017), held that “covenants ‘whose sole purpose is to prevent competition per se'” are “void against public policy.” But, under Florida Statutes Section 542.335(1), where such covenants are set forth in writing, “reasonable in time, area, and line of business,” and “supported by a legitimate business interest” they are not prohibited. The Supreme Court in the White decision explained that for a non-compete agreement or other restrictive covenant to be enforceable, “‘there must be special facts present over and above ordinary competition’ such that, absent a non-competition agreement, ‘the employee would gain an unfair advantage in the future competition with the employer.'” Confidential information can qualify as a legitimate business interest, but in many cases courts have found businesses’ designations of information as “confidential” is unfounded and therefore does not qualify as a legitimate business interest. Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

To sufficiently plead and prove a legitimate business interest in confidential information, the employer must articulate the information that it deems confidential. For example, in Passalacqua v. Naviant, Inc., 844 So.2d 792 (Fla. 4th DCA 2003), Florida’s Fourth District Court of Appeal found there was no legitimate business interest where the employer failed to “articulate how any activity, method or technique utilized by [the company] was unique or proprietary in any way.” Similarly, the United States District Court for the Middle District of Florida, in Lucky Cousins Trucking, Inc. v. QC Energy Res. Texas, LLC, 223 F.Supp.3d 1221 (M.D. Fla. 2016), explained that “information commonly known in the industry and not unique to [the] allegedly injured party [is] not ‘confidential’ and thus not entitled to protection.”

Florida’s restrictive covenant statute, at Florida Statutes Section 542.335(b), requires not only that the information is truly “confidential,” but it must also be “valuable.” An employer must prove that the employee could use the information to gain an unfair advantage, and the employer must prove this with specific factual evidence. In the Passalacqua case, the appellate court determined that the allegedly “confidential” information was not valuable, and explained in pertinent part: “Hirsch did not articulate how any activity, method or technique utilized by Naviant was unique or proprietary in any way. Nor did he give any reason to believe that the manual was anything but a compilation of widely known and commonly used sales and marketing techniques. Naviant failed to prove, through Hirsch or otherwise, anything which even approximates a ‘legitimate business interest’ as defined in the statute, section 542.335(1)(b), Florida Statutes.” In Passalacqua, the employer failed to meet its legal burden of proof, but its case weakened further when the employee presented counter-evidence. The appellate court explained that: “Although not required to disprove Naviant’s conclusory and unsubstantiated claims of proprietary information, appellants presented detailed and uncontroverted testimony and other evidence showing that there was nothing unique about Naviant’s operations, sales methods or other aspects of its business that anyone with their history of making unsolicited sales calls (“cold calling”) does not know.”

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