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Articles Posted in Non-Compete Cases

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Florida’s Non-Compete Covenant Statute, section 542.335, establishes certain requirements for covenants restraining competition, and once such statutory requirements are met, the restrictive covenant becomes enforceable.  Section 542.335(1)(j) allows restrictive covenants to be enforced through a temporary injunction, which, pursuant to Rule 1.610(a)(1)(A) of the Florida Rules of Civil Procedure, may be granted only if “it appears from the specific facts shown by affidavit or verified pleading that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition.”  As such, section 542.335(1)(j) includes a provision stating that “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 critical to the issuance of a temporary injunction to enjoin a violation of a restrictive covenant because at the time a party is seeking such an injunction, he or she may not have had the benefit of completing discovery to ascertain the exact nature and amount of harm suffered due to the violation of the restrictive covenant.  Thus, the presumption of irreparable injury allows the party seeking to enforce the restrictive covenant to do so without the need for such discovery.  An example of just how critical this presumption is can be found in a recent Florida appellate court decision out of the Second District Court of Appeals.

In Medco Data, LLC v. Bailey, 152 So. 3d 105, 106 (Fla. 2d DCA 2014), the plaintiff, Medco Data, LLC (“Medco Data”), appealed a trial court’s denial of a temporary injunction against three of its former employees for violating the restrictive covenants contained in their respective employment agreements.  The trial court found that the agreements were “well written” and “valid,” and further found that the former employees “did something to breach the relationship and it cost Medco Data money.”  Nevertheless, the trial court denied Medco Data’s motion for temporary injunction, stating “Medco Data has to prove a likelihood of irreparable harm.  I don’t find that the company can show that in this case.”  Relying primarily on the wording of section 542.335 and prior appellate court authority, the Second District Court of Appeals reversed the trial court’s denial of the temporary injunction “because the trial court failed to apply the statutory presumption of irreparable injury under section 542.335(1)(j),” and remanded the case to the trial court for reconsideration in view of the presumption.

The appellate court’s decision in Medco Data, LLC v. Bailey makes it clear that a trial court’s failure to apply the presumption of irreparable injury when a party is seeking an injunction to enjoin the violation of an enforceable restrictive covenant constitutes reversible error.  The application of the presumption, however, does not always mean that an injunction will be granted.  The presumption is a rebuttable.  In other words, once the presumption is applied, the burden shifts to the party opposing the injunction to show the absence of injury.  Nevertheless, the fact that the presumption must be applied after a court finds that an enforceable restrictive covenant has been violated is significant because, as discussed above, it avoids the need for lengthy discovery prior to the issuance of a temporary injunction.

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Generally, under Florida statutory law, restrictive covenants, e.g., non-competition covenants, must be signed by the person against whom the covenant will be enforced.  A restrictive covenant cannot be enforced against an individual who did not sign the restrictive covenant.

In Winn-Dixie Stores, Inc. v. Dolgencorp, Inc., 964 So. 2d 261 (Fla. 4th DCA 2007), Winn-Dixie Stores, Inc. (“Winn-Dixie”) entered into a lease with a landlord that granted Winn-Dixie the exclusive right to sell groceries at a particular shopping plaza.  The restrictive covenant in the lease stated that other stores in the plaza could sell groceries only if they did not devote more than 500 square feet to those groceries.  Thereafter, Dolgencorp, Inc. (“Dolgencorp”) leased a location at the plaza and devoted more than 500 square feet to grocery items.  Winn-Dixie sued to enforce the restrictive covenant.  Dolgencorp argued that because it never signed the restrictive covenant, the covenant could not be enforced against Dolgencorp under Florida law.  While the trial court agreed with Dolgencorp, the appellate court found that the restrictive covenant was enforceable against Dolgencorp even though Dolgencorp never signed the covenant.  The appellate court’s decision is rooted in the distinction between personal covenants and real covenants.

A personal covenant is a provision in a contract that creates personal contractual obligations.  For example, a restrictive covenant contained in an employment agreement is a personal covenant.  On the other hand, a real covenant is a provision contained in transaction involving real property—for example, a restrictive covenant contained in a lease of real property.  Generally, if a real covenant touches and  involves the land and was meant to bind all subsequent purchasers of the land, then the real covenant is said to “run with the land” and will bind all subsequent purchasers or lessees of the land who had notice of the covenant.

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Under Florida law, non-competition covenants are generally enforceable if they protect one or more legitimate business interest.  However, certain acts by the employer could defeat the enforceability of the non-competition covenant.  Under contract law, a party’s material breach of a contract will render the entire contract unenforceable against the other party.  In other words, if an employer materially breaches the employment contract—i.e., if the employer fails to pay wages or commissions in accordance with the employment contract—the employee will be released from the non-competition covenant.  There is an exception to that general rule: independent non-competition covenants.

If the non-competition provision of an employment contract is considered “independent,” then the employer’s breach of the employment contract will not affect the non-competition covenant’s enforceability.  Essentially, the independent non-competition covenant will be considered a separate contract.  A Florida district court recently shed some light on what contractual language would suffice to render a non-competition covenant “independent.”

In Richland Towers v. Denton, 2014 Fla. App. LEXIS 3472 (Fla. 2d DCA Mar. 12, 2014), an employer, Richland Towers, sued to enforce its non-competition covenants with two former employees who started a competing business.  Richland Towers, however, failed to pay those employees certain bonuses that were required under the employment contract.  The trial court found that Richland Towers’ failure to pay the contractually required bonuses constituted a prior material breach that essentially destroyed the entire employment contract and released the employees from the non-competition covenant.  The appellate court disagreed.

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Under Florida law, non-compete contracts are often held unenforceable due to circumstances of the employer-employee relationship, employee background, or the contract itself. Generally, employers must show they have a “legitimate business interest” to make a non-competition covenant enforceable. A legitimate business interest could include specialized training the employer provided the employee, a sort of investment in the employee.

In a case handled by attorney Peter Mavrick, an employer wanted to enforce a noncompete covenant against Mr. Mavrick’s client, an employee that had received some training from his former eimployer. However, the training was minimal. Most importantly, the employee had many years of experience in the employer’s industry before he signed the noncompetition contract. It was because of that substantial industry experience that the employer hired Mr. Mavrick’s client. The employee was highly competent because of his experience.

Based on case law invalidating a noncompete contract where the employee’s specialized knowledge preceded his contract, attorney Peter Mavrick successfully argued that the noncompetition covenant was invalid. Mr. Mavrick’s client was allowed to continue his own business in competition with his former employer.

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