FORT LAUDERDALE NON-COMPETE AGREEMENT: BUSINESSES CANNOT ENFORCE NON-COMPETES AFTER THEY STOP CONDUCTING BUSINESS

Establishing the existence of a legitimate business interest is the foundation to enforcing a restrictive covenant like a non-competition agreement. Fla. Stat. § 542.335 (“The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.”). The law imposes a burden to prove the existence of a legitimate business interest to ensure the enforcing party does not hinder or prevent ordinary competition. White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, 226 So. 3d 774 (Fla. 2017) (“Section 542.335 does not protect covenants whose sole purpose is to prevent competition per se because those contracts are void against public policy.”). Restrictive covenants can only be enforced to prevent unfair competition. Passalacqua v. Naviant, Inc., 844 So. 2d 792 (Fla. 4th DCA 2003) (“[T]here must be special facts present over and above ordinary competition” that would allow someone the “gain an unfair advantage in future competition.”). 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.

Florida’s restrictive covenant statute includes a provision preventing enforcement of the covenant when the plaintiff “no longer continues in business in the area or line of business.” Fla. Stat. § 542.335. The defense is only available when the defendant did not cause the business’s demise. Fla. Stat. § 542.335 (A court may the “only if such discontinuance of business is not the result of a violation of the restriction.”). The defense was created to ensure the plaintiff’s legitimate business interests are worthy of protection because a plaintiff cannot enforce a restrictive covenant preventing others from competing when the plaintiff itself has no interest in the marketplace. Chen v. Cayman Arts, Inc., 2011 WL 3903158 (S.D. Fla. Sept. 6, 2011) (“Cayman has not suggested any reason that its purported trade secrets remain a legitimate business interest following Cayman’s dissolution… Accordingly, Cayman has not met its burden to show that Section 6.5 is justified by or reasonably necessary to protect a legitimate business interest.”); Wolf v. James G. Barrie, P.A., 858 So. 2d 1083 (“When Wolf opened his new practice in October 2002, Barrie, P.A., no longer operated Animal Eye Clinic and was not in the business of veterinary ophthalmology. Thus, it had no legitimate business interest to protect from Wolf’s competition.”); Marine Turbo Eng’g, Ltd. v. Turbocharger Services Worldwide, LLC, 2011 WL 6754058 (S.D. Fla. Dec. 22, 2011) (“…if the Company stops repairing or maintaining turbochargers than the employee would be free to engage in that business.”).  

The “no longer continues in the business” defense does not automatically prohibit every litigant from enforcing a restrictive covenant simply because it chose to stop conducting business in a particular market sector. There are nuances that can impact the defense. USI Ins. Services of Florida Inc. v. Pettineo, 987 So. 2d 763 (Fla. 4th DCA 2008) is a good example. In USI Ins. Services, a seller sold his insurance business and agreed not to compete against the insurance business as part of the transaction. Sometime thereafter, the buyer decided to stop selling insurance policies below a certain threshold amount. In turn, the seller began selling insurance policies to his former clients below the threshold amount. The buyer sued to enforce its restrictive covenant and the seller asserted the “no longer continues in the business” defense. However, the court rejected the seller’s defense because the buyer’s decision to stop selling low-cost insurance policies did not preclude the buyer from recommencing those activities in the future. The court determined the buyer had a right to recommence its sale of low-cost insurance policies and should therefore get the benefit of the restrictive covenants it bargained for when the buyer agreed to handsomely pay the seller for his business.

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.