Contractual disputes often arise from issues surrounding the sale of a business, including whether the previous business owner’s restrictive covenants are assignable to and enforceable by the successor owner. “An assignment is a transfer of all the interests and rights to the thing assigned.” Lauren Kyle Holdings, Inc. v. Heath-Peterson Constr. Corp., 864 So. 2d 55 (Fla. 5th DCA 2004). Under Florida law, a successor business owner can enforce a restrictive covenant against a third party only if the restrictive covenants expressly authorize enforcement by assignees or successors of the original party. 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.
Florida law expressly allows assignment of non-compete covenants. However, Florida law also limits the enforcement of a restrictive covenants by an assignee or successor to situations where assignability of the restrictive covenant is expressly defined by contract. Section 542.335(1)(f)(2), Florida Statutes provides, in pertinent part:
(1) Notwithstanding s. 542.18 and subsection (2), enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited. In any action concerning enforcement of a restrictive covenant:
. . .
(f) The court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is a third-party beneficiary of such contract or is an assignee or successor to a party to such contract, provided:
. . . .
(2) In the case of an assignee or successor, the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.
Florida courts must scrutinize the contractual language contained in the documents executing the business sale to determine whether the parties intended to expressly assign restrictive covenants to the successor business owners. A party can satisfy Section 542.335 if the party includes a general assignment clause in the contract creating the restrictive covenant. DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928 (Fla. 1st DCA 2012). For example, in Patel v. Boers, Florida’s Fifth District Court of Appeals ultimately found the restrictive covenants were enforceable by an assignee even though the non-compete provision did not include the exact language from Section 542.335(f)(1)(2). 68 So. 3d 380 (Fla. 5th DCA 2011). Patel held that the business’ assignees and successors could enforce restrictive covenants because the subject contract expressly provided that the rights and obligations of the employer “are assignable” to the business’ purchaser. Patel v. Boers, 68 So. 3d 380 (Fla. 5th DCA 2011).
Indeed, Patel’s bill of sale included the following non-compete language: the parties “specifically agreed that the mutual and reciprocal covenants and agreements, rights and obligations contained in this Provider Agreement are assignable only by [the seller].” Patel ultimately held that this “assignment language contained in the instant [contract] is sufficient to constitute an express authorization of enforcement by an assignee or successor as required by the statute.” Patel v. Boers, 68 So. 3d 380 (Fla. 5th DCA 2011).
Courts will also enforce non-compete agreements on behalf of an employer assignee if an employee previously consented to the assignment. As one example, in Pino v. Spanish Broadcasting Systems of Florida., Inc., Florida’s Third District Court of Appeal held that restrictive covenants were assignable and enforceable by a purchasing business because the employee’s noncompete agreement expressly permitted assignment to a subsequent employer. 564 So. 2d 186 (Fla. 3d DCA 1990). Thus, it is important for a successor employer to review the employment contracts of the seller before purchasing the business.
By contrast, Florida courts will not enforce restrictive covenants on behalf of an assignee if the business sale agreement prohibits parties from assigning any rights or obligations under the agreement. For example, in Marx v. Clear Channel Broadcasting, Inc., Florida’s Fourth District Court of Appeal held that the purchasing business owner could not enforce the non-compete agreement executed by the previous business owner because the agreement did not expressly state the clause could be enforced by assignees. 887 So. 2d 405 (Fla. 4th DCA 2004).
Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.