Articles Posted in Non-Compete Agreements

Florida Courts routinely enforce non-compete agreements to prevent a former or current employees’ improper solicitation of the business’ current and prospective employees and customers.  Such restrictive covenants, also commonly referred to as non-solicitation provision, are governed by Section 542.335, Florida Statutes. The non-solicitation provisions must be: (1) reasonable in time, area, and line of business, (2) supported by a legitimate business interest, and (3) reasonably necessary to protect such interest. Non-solicitation clauses are useful to protect a business’ substantial business relationships with its existing or prospective customers. As with other contractual covenants, Florida courts will interpreted interpret non-solicitation provisions under Florida law in business litigation. Peter Mavrick is a Fort Lauderdale non-compete 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 litigation, and other legal disputes in federal and state courts and in arbitration.

“Generally, the intentions of the parties to a contract govern its construction and interpretation.” Waverly 1 & 2, LLC v. Waverly at Las Olas Condo. Ass’n, 242 So. 3d 425 (Fla. 4th DCA 2018). Where contractual terms are clear and unambiguous, the court is bound by the plain meaning of those terms. The intent of the parties by their use of such terms must be discerned from within the ‘four corners of the document.’”  Emerald Pointe Prop. Owners’ Ass’n, Inc. v. Commercial Const. Indus., Inc., 978 So. 2d 873 (Fla. 4th DCA 2008). ”Furthermore, the language being interpreted must be read in conjunction with the other provisions in the contract.”  Waverly 1 & 2, LLC v. Waverly at Las Olas Condo. Ass’n, Inc., 242 So. 3d 425 (Fla. 4th DCA 2018). ”In construing the language of a contract, courts are to be mindful that ‘the goal is to arrive at a reasonable interpretation of the text of the entire agreement to accomplish its stated meaning and purpose.’”  Silver Shells Corp. v. St. Maarten at Silver Shells Condo. Ass’n, 169 So. 3d 197 (Fla. 1st DCA 2015).  ”To that end, a cardinal principle of contract interpretation is that the conduct must be interpreted in a manner that does not render any provision of the contract meaningless.” Silver Shells Corp. v. St. Maarten at Silver Shells Condo. Ass’n, 169 So. 3d 197 (Fla. 1st DCA 2015).

Florida courts that interpret a “solicitation” term in a non-compete agreements typically find found that the offending “solicitation” must be active, rather than passive. In Scarbrough v. Liberty Nat’l Life Ins. Co., the Florida’s First District Court of Appeal held “that the term ‘solicit’ in an agreement prohibited the employee from being ‘proactive’ in such efforts”. 872 So. 2d 283 (Fla. 1st DCA 2004). In this sense, an employee’s mere suggestion or statement to coworkers that they are starting their own business likely will not, on its own, qualify as a “solicitation” under Florida law.

A prevalent issue in non-compete litigation is whether a company’s non-compete agreement is enforceable to protect a company’s customer, patient, or client goodwill. In certain sitations, a company’s goodwill qualifies as a legitimate business interest under Section 542.335, Florida’s non-compete statute. “Florida statutory law (as a matter of public policy) does not allow a party to enforce a restrictive covenant unless it proves that enforcement is necessary to protect its legitimate business interests.” Evans v. Generic Sol. Eng’g, LLC, 178 So. 3d 114 (Fla. 5th DCA 2015). Section 542.335 includes a non-exhaustive list of examples of legitimate business interests, one of which is a party’s “customer, patient, or client goodwill” associated with “a specific geographic location” or “a specific marketing or trade area.” Ansaarie v. First Coast Cardiovascular Inst., P.A., 252 So. 3d 287 (Fla. 1st DCA 2018). 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 litigation, and other legal disputes in federal and state courts and in arbitration.

Goodwill typically qualifies as a “legitimate business interest” if it “represent[s] an investment by the employer” and “enable[s] unfair competition if misappropriated.” IDMWORKS, LLC v. Pophaly, 192 F. Supp. 3d 1335 (S.D. Fla. 2016). “Courts are statutorily required to construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement.” SC Maint., Inc. v. Martin, 2021 WL 4948183 (M.D. Fla. Aug. 22, 2021). In business litigation, some Florida courts have viewed a company’s purported goodwill as an asset that generates a reasonable expectation of greater-than-usual business or revenue. Held v. Held, 912 So. 2d 637 (Fla. 4th DCA 2005). In Swann v. Mitchell, Florida’s Supreme Court defined goodwill as “the advantage or benefit the business has beyond the mere value of its property and capital.” Swann v. Mitchell, 435 So. 2d 797 (Fla. 1983). “Black’s Law Dictionary defines goodwill as ‘the ability of a business to generate in excess of a normal rate on assets due to superior managerial skills, a market position, [or] new product technology.’” Nelson v. Nelson, 795 So. 2d 977 (Fla. 5th DCA 2001).

When determining whether goodwill exists in business litigation, Florida courts often must also analyze the scope and nature of the business’ customer relationships. To this end, Florida courts typically focus on the geographic regions where the customers are located. For example, in Surgery Center Holdings, Inc. v. Guirguis, Florida’s Second District Court of Appeal held that the business “established patient goodwill within a specific geographic location and substantial relationships with existing patients, proving legitimate business interests that are reasonably related to the restrictive covenants.” 318 So. 3d 1274 (Fla. 2d DCA 2021). Guirguis relied upon documentation, testimony, and other testimony demonstrating that the business “invest[ed] in physicians, geographies, and markets to best serve their patient population.” Surgery Ctr. Holdings, Inc. v. Guirguis, 318 So. 3d 1274 (Fla. 2d DCA 2021).

Businesses can use non-compete agreements to protect their substantial business relationships with prospective and current customers, patients, or clients. A common issue in business litigation seeking to enforce non-compete agreements is whether the business sufficiently demonstrates that it has substantial business relationships to protect. Such business relationships are typically based on the contractual agreements between the business and customer. However, a business can establish a “prospective” substantial relationship when the customers are specific and identifiable. Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation 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 “enforce restrictive covenants under Florida law, a plaintiff must plead and prove the existence of one or more legitimate business interests justifying a restrictive covenant; generally, a legitimate business interest takes the form of confidential information, substantial customer relationships, or extraordinary training and education, and a restrictive covenant may be no broader than is necessary to protect the legitimate business interest at issue.” Lucky Cousins Trucking, Inc. v. QC Energy Resources Texas, LLC, 223 F. Supp. 3d 1221 (M.D. Fla. 2016). Under Florida law, “to have protectable interest in specific prospective or existing customer relationships, employer seeking to enforce restrictive covenant in employment agreement need not prove that its former employee himself had a substantial relationship with any particular customer; proper inquiry focuses on relationship between employer and its prospective and existing customers.” Milner Voice and Data, Inc. v. Tassy, 377 F. Supp. 2d 1209 (S.D. Fla. 2005).

A business’ customer relationships are protected as legitimate business interests under Section 542.335, Florida Statutes, because such relationships are often the lifeblood of a business. Indeed, “[a]s with many sales positions, regardless of the industry, forming relationships with prospective and existing customers is invaluable and often vital for success.” Allied Universal Corp. v. Given, 223 So. 3d 1040 (Fla. 3d DCA 2017). This is one example of why “the harm presumed under the statute includes the potential damages to [the plaintiff’s] longstanding relationships with its customers and the protection of confidential client information.” Variable Annuity Life Ins. Co. v. Hausinger, 927 So. 2d 243 (Fla. 2d DCA 2006).

The recent appellate decision from Florida’s Second District Court of Appeal in Capital Wealth Advisors, LLC v. Capital Wealth Advisors, Inc., 2021 WL 4898462 (Fla. 2d DCA 2021), clarified whether a business can get out of a financially unfavorable contract on the grounds that its “lopsidedness or open-endedness” is an invalid restraint on trade or commerce.  In reaching its decision, the appellate court interpreted the meaning of Florida Statute § 542.18, which provides that “[e]very contract, combination, or conspiracy in restraint on trade or commerce in this state is unlawful,” and its interplay with Florida’s non-compete statute, Florida Statute § 542.335.  Peter Mavrick is a Fort Lauderdale business litigation lawyer, 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 litigation, and other legal disputes in federal and state courts and in arbitration.

The Capital Wealth Advisors case involved a dispute over a contract where a company promised to pay very generous commissions to an insurance agent.  The contract promised large commission percentages.  The contract also promised that the “commission sharing arrangement would survive termination and continue in perpetuity.  In the business litigation, the company obtained summary judgment against the agent on the grounds that the commissions contact “constituted an unlawful restraint on trade in violation of section 542.18 (i.e., Florida’s restraint on trade or commerce statute) and 542.335 (i.e., Florida’s non-compete contract statute).  In evaluating the trial court’s decision, the appellate court explained “we need not reach the reasonableness of the scope of the Agreement or whether it is necessary to protect a legitimate business interest under section 542.335 unless and until we determine that the commission sharing arrangement is, in fact, a restraint on trade or commerce under section 542.18.”  The company argued the contract constitutes a “restraint on trade or commerce” because it imposes a “substantial financial disincentive” on the company.  The company emphasized “how good a deal this is for the Agent, and how correspondingly severe the effects of the deal have been to the” company.  The appellate court explained, however, that the contract “might very well have been—or became, in light of circumstances developed after its execution—quite advantageous to the Agent and disadvantageous to the Company … This does not make it a restraint on trade or commerce.”

Capital Wealth Advisors explained that Florida Statute 542.18 prohibits restraints “on trade or commerce in general—not on the competitiveness or incentives of individual actors.”  The appellate court relied on federal courts’ interpretations of federal antitrust law, including the United States Supreme Court decision in Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (“The law directs itself not against conduct which is competitive, or even severely so, but against conduct that tends to destroy competition itself”) and a recent case from the United States District Court for the Southern District of Florida, United Am. Corp. v. Bitmain, Inc., 2021 WL 1807782 (S.D. Fla. 2021) (“[a]n unreasonable restraint on trade is one that harms competition in general, rather than the plaintiff, or any other competitor”).  Section 542.18 does not prohibit every contract that might substantially reduce the competitiveness or profit motive of a party to the contract.  On the contrary, “section 542.18 governs restraints on ‘trade’ or ‘commerce’ itself—not the discreet effects that agreements have on the parties who enter into them.”  The appellate court in Capital Wealth Advisors determined that the company agreed to the contract even though it financially favored the agent.  Nevertheless, such a contract does not retrain trade or commerce in the insurance market.  “Here, there is nothing keeping the Agent from competing against the Company, or vice versa, by utilizing the very same referral sources that it provided to the Company.”  Fundamentally, the contract did not negatively affect consumers’ ability to procure insurance products since both the company and the agent can freely compete for the same business.