FORT LAUDERDALE NON-COMPETE AGREEMENT: BLUE PENCILING IS NOT ALWAYS ALLOWED

Florida statute § 542.335 allows one to enforce a contract “that restrict[s] or prohibit[s] competition during or after the term of restrictive covenants, so long as such [a] contract[ is] reasonable in time, area, and line of business.” Fla. Stat. § 542.335. The plain language of the statute suggests restrictive covenants cannot be enforced when they are unreasonable in time, geographic area, or line of business. However, this is not the case in Florida because the restrictive covenant statute contains another provision expressly allowing for modification of a restrictive covenant that is overbroad, overlong, or otherwise not reasonably necessary to protect a legitimate business interest. Fla. Stat. § 542.335 (“If 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 modification of a restrictive covenant is called blue penciling. PartyLite Gifts, Inc. v. MacMillan, 895 F. Supp. 2d 1213 (M.D. Fla. 2012) (“Where, as here, 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.”). The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent 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.

Blue penciling could be used to modify a restrictive covenant lasting for an indefinite period of time. Rauch, Weaver, Norfleet, Kurtz & Co., Inc. v. AJP Pine Island Warehouses, Inc., 313 So. 3d 625 (Fla. 4th DCA 2021). The court would reduce the duration of the covenant to a lesser period it determines to be reasonable. A Florida court should look to the restrictive covenant statute when determining the reasonable duration of the restrictive covenant because the statute contains certain durational presumptions based on a variety of circumstances. The court should select the correct circumstance from the statute and apply the relevant duration to the restrictive covenant.

Not all states allow or require the modification of restrictive covenants that are overbroad, overlong, or otherwise not reasonably necessary to protect a legitimate business interest. In Delaware, courts have discretion to modify noncompliant restrictive covenants. Delaware courts can exercise that discretion “under circumstances that indicate an equality of bargaining power between the parties.” Sunder Energy, LLC v. Jackson, 332 A. 3d 472 (Del. 2024). The party seeking modification must demonstrate the “language of the covenants was specifically negotiated or valuable consideration was exchanged for the restriction.” Delaware courts are reluctant to blue pencil restrictions that do not satisfy these criteria because “the threat of losing all protection gives employers an incentive to restrict themselves to reasonable clauses.” Delaware Elevator, Inc. v. Williams, 2011 WL 1005181 (Del. Ch. Mar. 16, 2011). Eliminating an “employer’s no-lose proposition helps equalize bargaining power up front” so that “a court can be more confident in the arm’s-length nature of the [restrictive covenant’s] terms. In Sunder Energy, LLC v. Jackson, 332 A. 3d 472 (Del. 2024), the court analyzed an overbroad restrictive covenant and refused to exercise its discretion to reduce the restrictive covenant’s overbreadth. As a result, the party seeking enforcement of the restrictive covenant could not do so because the covenant, as drafted, remained overbroad.

The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent 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.