Non-compete agreements often prohibit competition with other companies that are “similar to” or “competitive with” their own company. The wording of a non-compete covenant, however, can sometimes be understood to refer to the method of the business as opposed to the products or services being sold. Under Florida law, a non-compete agreement that prohibits doing business with direct sales companies (such as door-to-door sales, home party sales, etc.) may be enforceable to protect a legitimate business interest. Peter Mavrick is a Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.
An example of this circumstance occurred in the federal court case PartyLite Gifts, Inc. v. MacMillan, 895 F.Supp.2d 1213 (M.D. Fla. 2012), where Plaintiff, PartyLite, Inc. (“PartyLite”), filed a lawsuit against Defendant, Tarie MacMillan (“MacMillan”), claiming breach of the parties’ non-compete, non-solicitation, and non-disclosure agreements. PartyLite sold candles and related home products to consumers through the “home party plan” method of direct sales. Independent contractors known as “Consultants” demonstrated products and accepted orders for PartyLite’s products. All PartyLite Consultants, including MacMillan, signed a form Consultant Agreement which incorporated by reference certain policies and procedures contained in the PartyLite’s Policies and Procedures. PartyLite’s Policies and Procedures included terms and conditions wherein the Consultant agreed: 1) not to promote or sell other products or services or recruit for other companies or other business activities at PartyLite Shows, meetings or other events, 2) if the Consultant represented another company or participated in other business activities outside PartyLite, that any information, printed materials or other items obtained through association with PartyLite be kept separate and not used to solicit, promote, market or sell at or for any non-PartyLite activity, and 3) to keep PartyLite information confidential.
MacMillan advanced to the highest-level recognized by PartyLite, specifically that of “Senior Regional Vice President.” After her promotion to “Senior Regional Vice President,” PartyLite and MacMillan entered into a Leader Commitment Agreement (the “Leader Agreement”). The Leader agreement expanded the terms of the Consultant Agreement and included a provision wherein MacMillan agreed that during the term of the Leader Agreement and after the term ends and thereafter, she would not solicit or otherwise attempt to persuade any PartyLite Consultant or Leader to sell, resell or promote products of any other direct sales company, or to cease to be a Consultant or Leader of the Company. The Leader Agreement allowed MacMillan to accept employment and participate in other activities without PartyLite’s approval provided those activities do not violate the Leader Agreement and did not involve “selling, reselling, promoting products, or actively representing other direct sales companies that are similar to or competitive with the Company.” MacMillan worked as a Leader for PartyLite for several years after executing the Leader Agreement.
During her employment with PartyLite, MacMillan joined the sales force of Park Lane Jewelry, Inc. (“Park Lane”), another direct sales company. Park Lane sold jewelry through a “home party plan” method of direct sales, similar to that employed by PartyLite. It was undisputed that though Park Lane and PartyLite and their products are dissimilar, both entities engaged in direct sales to consumers through multi-level marketing and relied primarily on parties arranged by their consultants to sell their products. It was undisputed that MacMillan had contact with Park Lane representatives on numerous occasions before her relationship with PartyLite ended. Also, it was undisputed that before and after her departure from PartyLite, MacMillan had numerous meetings with PartyLite salespersons where MacMillan discussed her reasons for joining ParkLane. MacMillan offered to refer anyone interested in joining Park Lane to a high-level Park Lane representative. There was also undisputed evidence demonstrating that at least some of the individuals with whom MacMillan met left PartyLite and went to work for Park Lane shortly after meeting with MacMillan.
PartyLite filed its lawsuit against MacMillan and both parties filed motions for summary judgment based on their respective claims and defenses. PartyLite moved for summary judgment on its claim for breach of Leader Agreement and contended that the undisputed facts demonstrate that MacMillan breached both the non-compete and non-solicitation provisions in the Leader Agreement. MacMillan contended that she was entitled to summary judgment on the claim for breach of the Leader Agreement because, among other things, the misconduct she was alleged to have engaged in was not prohibited by the Consultant Agreement and because the non-solicitation clause in the Leader Agreement was unreasonable in duration and geographic scope.
MacMillan contended that there was no breach of the non-compete clause because (1) Park Lane is not similar to or competitive with PartyLite and (2) MacMillan never simultaneously sold products for both companies. MacMillan further contended that Park Lane and PartyLite sold different products. MacMillan argued that if the wording limiting the scope of the non-compete covenant other direct sales companies was to have any meaning, the similar to or competitive with qualifier must be read to require the other company to sell goods or services that are similar to or competitive with PartyLite. Because PartyLite sold candles and Park Lane sold jewelry, MacMillan contended that the two companies were not similar or in competition. The district court disagreed with her interpretation of the non-compete provision. The district court recognized that there are “different types of direct sales companies (e.g., door-to-door sales vs. home party sales)” and that the similar to or competitive with wording can be read to refer to the method of direct sales as opposed to the products being sold. The district court held that the undisputed facts demonstrate, PartyLite and Park Lane were competitors in that they competed for salespeople by offering competitive income opportunities under similar compensation schemes. Also, the district court observed that PartyLite and Park Lane were similar in that they both used the home party method of direct sales to market their products. PartyLite Gifts, Inc. v. MacMillan held that the fact that “the companies may sell different products does not mandate the conclusion that they are neither similar nor competitive.” The federal court further held that there was sufficient evidence in the record from which a reasonable juror could have concluded that MacMillan promoted or actively represented Park Lane before the termination of her relationship with Party Lite. Disputed issues of material fact precluded entry of summary judgment on the issue of whether MacMillan breached this aspect of the non-compete provision in the Leader Agreement.
The federal court also addressed MacMillan’s contention that the non-solicitation clause in the Leader Agreement was unreasonable in duration and geographic scope. The Judge observed that the non-solicitation clause in the Leader Agreement lacked any restriction on its duration or geographic scope, but rather provided that “during the term of this Agreement and thereafter, I shall not use, or provide others, any Company proprietary or confidential information in any form … [and], I shall not solicit or otherwise attempt to persuade any PartyLite Consultant or Leader to sell, resell or promote products of any other direct sales company, or to cease to be a Consultant or Leader of the Company.” Under Florida law, an indefinite non-solicitation provision is presumptively unreasonable. Fla. Stat. § 542.335. The district court held that though the Leader Agreement did not specify a temporal duration, that did not render it unenforceable. The discretion to enforce the non-solicitation provision to the extent it was found to be reasonable and necessary to protect one or more legitimate business interests was within the power of the district court. The district court held that when “the provisions of a restrictive covenant are unreasonable, the correct procedure is for the Court to modify, or ‘blue pencil,’ the agreement and award an appropriate remedy.” Under Section 542.335(1)(c) of the Florida Statutes, “[i]f a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.” The district court held that regardless of the persuasiveness of PartyLite’s evidence, there were, at a minimum, disputed material facts on the issue of whether MacMillan breached the non-solicitation provision in the Leader Agreement. The district court ultimately held that there were disputed material facts which must be resolved by the jury. The federal court therefore denied the parties’ summary judgment motions.
Peter Mavrick is a Miami non-compete lawyer. This article does not serve as a substitute for legal advice tailored to a particular situation.