A non-compete covenant in an employment contract prohibits a former employee from competing with his/her former employer for a specified term after termination of employment. If the worker continues to work for the employer in a status other than an “employee”, then the starting point for the non-compete period may be affected. The determination of when the non-compete period begins to run depends on judicial interpretation of the contract. Peter Mavrick is a non-compete lawyer who has extensive experience with non-compete agreements and defending against non-compete lawsuits.
In Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012), Anarkali Boutique, Inc. (“Employer”) hired Nahomi Ortiz (“Ortiz”) in 2008 and entered into an employment agreement. The agreement prohibited Ortiz from working as an employee, independent contractor, officer, director, or shareholder, in any employment, business, or activity that in any way competes with her employer within a one hundred-mile radius for two years after Ortiz was no longer employed by Employer. The agreement also stated that “[a]ny subsequent change or changes in her duties, salary or compensation will not affect the validity or scope of this Agreement.”
During Ortiz’s training, Employer paid Ortiz a salary. In 2009, Employer began classifying Ortiz as an “independent contractor”. For example, instead of salary, she received a 35% commission on the services she performed. In exchange, Ortiz had to pay taxes on the commissions and had to pay her share of Employer’s rent, supplies, utilities, and insurance.
In 2011, Ortiz quit her job and opened her own business. She performed the same services, at a location less than five miles from the Employer’s location. Employer sued Ortiz for violation of the non-compete/non-solicitation agreement. Employer also moved for a temporary injunction against Ortiz. After an evidentiary hearing, a Broward County Circuit Court Judge denied Employer’s motion for temporary injunction. The trial judge found that the two-year non-compete period began in 2009 when Employer changed Ortiz to an independent contractor.
Employer appealed. The Fourth District Court of Appeal (“Fourth DCA”) reversed the trial court’s decision. The appellate court held that the trial court erred because it did not give effect to the agreement’s provision that “[a]ny subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.” See Philip Morris, Inc. v. French, 897 So.2d 480, 488 (Fla. 3d DCA 2004) (“Courts are required to construe a contract as a whole and give effect, where possible, to every provision of the agreement”). The rationale applied in Anarkali Boutique, Inc. v. Ortiz was that the Employer’s change of Ortiz’ status to an independent contractor only changed her duties, salary, and compensation. Ortiz was no longer a trainee being paid a salary. Instead, Ortiz was permitted to maintain her own clientele and “make more money” by being paid through commissions minus her share of the Employer’s expenses. Consequently, the mere changing of the worker’s status from an employee to an independent contractor did not cause the two-year non-compete period to begin running.
Anarkali Boutique, Inc. v. Ortiz also held that the provision concerning the termination of Ortiz’ employment and the provision concerning subsequent changes in duties, salary or compensation, must be construed to give effect to the intent of the parties from review of the whole agreement and its purpose. Id. citing Arthur Rutenberg Corp. v. Pasin, 506 So. 2d 33, 34 (Fla. 4th DCA 1987). Anarkali Boutique, Inc. v. Ortiz found that the purpose of the agreement was to preclude Ortiz from competing with Employer after Ortiz was trained, built her own clientele and worked for Employer as an independent contractor.
Courts are required to construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. Fla. Stat. § 542.335(1)(h). Anarkali Boutique, Inc. v. Ortiz held that it would be unreasonable to conclude that the non-compete period began running while Ortiz was building her own clientele as Employer’s independent contractor only to quit and immediately start her own competing business. See Am. Med. Int’l, Inc. v. Scheller, 462 So.2d 1, 7 (Fla. 4th DCA 1984) (“If clauses in contract appear to be repugnant to each other, they must be given such an interpretation and construction as will reconcile them, if possible, and if one interpretation would lead to an absurd conclusion, then such interpretation should be abandoned and the one adopted which would accord with reason and probability”).
In a prior article, the Mavrick Law Firm discussed a similar case where Florida’s Third District Court of Appeal (“Third DCA”) reached the opposite result. Zupnick v. All Florida Paper, Inc., 997 So. 2d 1234 (Fla. 3d DCA 2008). Zupnick v. All Florida Paper, Inc. involved a non-compete covenant of an employment agreement, which stated that “[a]t the expiration of this two (2) year contract, the employee can exercise an option to remain in ALL FLORIDA’S employ as an at-will employee. The Employee will have seventy two (72) hours from the end of this contract employment in which to exercise the option.” Zupnik v. All Florida Paper, Inc., supra. Zupnick completed his two-year contract with All Florida Paper, Inc. (“All Florida”), and then worked an additional two years for All Florida as an at-will employee. The appellate court reversed the trial court’s granting of a preliminary injunction, because the non-compete period had expired “by its very terms” at the expiration of the two-year contractual period. Id.
Zupnik and Ortiz differed as to when the non-compete period began to run. The Third DCA in Zupnick found that the non-compete period began to run when contract expired rather than when the employee ceased to work for the employer in any capacity. Whereas, the Fourth DCA in Ortiz found that the non-compete period began to run when the employee ceased working for the employer completely. The employment agreements in both Zupnik and Ortiz contemplated that the respective employee may continue to work for their respective employer in a different capacity. However, the Fourth DCA in Ortiz emphasized that when the Employer changed the classification of the former employee to an independent contractor, the Employer did not change the scope or validity of the employment agreement. The Fourth DCA concluded that it therefore would be unreasonable to construe that the two-year non-compete period to begin to run while Employer was still employing Ortiz as an independent contractor. Anarkali Boutique, Inc. v. Ortiz, supra.
Peter Mavrick practices non-compete litigation in Broward, Miami-Dade, and Palm Beach Counties, Florida. This article does not serve as a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311.