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Articles Tagged with Fort Lauderdale Non Compete Lawyer

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All businesses, especially those that may become the target of a merger or acquisition, that want their successor entities or assignees to have the right to enforce non-compete agreements against their former employees should include a provision that allows third-parties to enforce the non-compete agreements. Unless a non-compete agreement expressly authorizes enforcement of the non-compete by an employer’s assignees or successors, employers that did not include an assignment provision in their non-compete agreements could find their non-competes to be unenforceable if they are found to be “successor” entities. See Fla. Stat. § 542.335(1)(f); see also Collier HMA Physician Mgmt., LLC v. Menichello, 42 Fla. L. Weekly D1228 (Fla. 2d DCA May 31, 2017) (citing Corneal v. CF Hosting, Inc., 187 F.Supp.2d 1372, 1375 (S.D. Fla. 2001) (“[t]he term successor ‘is generally applicable to corporations wherein one corporation by a process of amalgamation, consolidation or duly authorized legal succession becomes vested in the rights and assumes the burdens of its predecessor corporation”).  Employers that include third-party enforcement provisions ensure that the employer’s interest in the agreement will survive in the event that the employer undergoes a corporate transformation and is found to be a successor in interest to the original employer. Thus, during the applicable restructuring event (merger, acquisition, spinoff, etc.), the controlling entity of an employer with executed non-compete agreements should balance the necessity of the maintenance of the employer’s non-compete agreements with the necessity of the employer becoming a different “successor” entity within the “traditional principles of corporate and business law.” Menichello, 42 Fla. L. Weekly D1228 at *7.  The Mavrick Law Firm regularly handles non-compete law in Broward, Miami-Dade, and Palm Beach Counties and has specifically handled matters concerning enforcement of non-compete agreements where there has been corporate assignees and successors.

In Menichello, the 2nd DCA recently held that the “successor defense” is ineffective against a valid non-compete agreement when the corporate identity of an employer – whose parent organizations underwent a series of mergers and acquisitions – is unchanged. See generally 42 Fla. L. Weekly D1228. In Menichello, the employer Collier HMA entered into a non-compete agreement (the Agreement) with the employee Dr. Menichello. After the parties entered into the Agreement, the ultimate parent of Collier HMA, Health Management Associates, Inc. was acquired and became a subsidiary of Community Health Systems, Inc. (CHS). After the merger, Dr. Menichello terminated his employment with Collier HMA and started working for Collier HMA’s direct competitor, in violation of his covenant not to compete. Collier HMA sought an injunction against Dr. Menichello that prohibited his employment with its competitor.

Reversing the lower-court’s refusal to enter an injunction against Dr. Menichello, the 2nd DCA clarified that “traditional principles of corporate law” determine “the obligations and liabilities of a successor corporation,” 42 Fla. L. Weekly D1228 at *7. The court then found that Collier HMA was not a “successor” within the meaning of the statute because Collier HMA “had not been consolidated with or amalgamated into another company after the merger.” It also noted that “Collier HMA had not acquired the rights of or assumed the burdens of any other entity” and that “nothing about the corporate structure or ownership of Collier HMA was different after the merger.” Id. Thus, in this case the court found that a third-party enforcement provision was not needed. See id. (“Collier HMA had not assigned the Agreement to another entity because no such assignment was required.”) Nevertheless, employers should include third-party enforcement provisions in their non-compete agreements so that they can engage in restructuring without the looming threat of a successor defense in a non-compete dispute.

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The Florida Supreme Court will soon release an opinion that settles whether unidentified prospective patients and referral physicians are protected legitimate business interests within the meaning of Florida’s Non-Compete Statute, § 542.335 Fla. Stat. On March 9, 2017, the Florida Supreme Court heard Oral Arguments in Americare Home Therapy, Inc., Etc. v. Hiles, a medical provider case, to address the issue. There is currently a noted conflict between the appellate courts with Third District Court of Appeal and Fourth District Court of Appeal on one side and the Fifth District Court of Appeal on the other.  The Third and Fourth DCAs are generous – or pro employer – in applying the statutes protections of legitimate business interests, while the Fifth DCA is applies the protections in a narrow fashion that is generous towards former employees. Attorney Peter Mavrick represents clients in non-compete litigation in Broward, Miami-Dade, Palm Beach, Lee, Collier, and Orange counties, and this divergent case law affects litigants in these counties and throughout Florida.

While this case is in the medical provider context, the outcome of this case will have widespread implications as the statute in question addresses restrictive covenants, otherwise known as non-compete agreements, that apply to all industries. Because the statutory wording of Section 542.335 is not restricted to the medical provider context, the Florida Supreme Court’s holding will likely extend beyond the medical provider context as it will consider the “substantial relationships with specific prospective or existing customers, patients, or clients.” § 542.335 Fla. Stat. Many employers use non-competes to protect themselves from the pervasiveness of competition from a former employee who has specific insights into the employer’s operations. If unchecked, a former employee could use their knowledge to disadvantage their former employer by usurping the employer’s business opportunities, recruiting the employer’s personnel, and targeting the employer’s clients.

In Hiles v. Americare Home Therapy, Inc., 183 So. 3d 449 (Fla. 5th DCA 2015), review granted (July 8, 2016), Carla Hiles appealed a trial court order that granted a temporary injunction filed by her former employer Americare Home Therapy. Hiles resigned from Americare and started working for Americare’s direct competitor. Upon termination, Hiles took information pertaining to Americare’s referral sources. The trial court believed that restrictive covenants set forth in Hiles’ employment agreement were supported by Americare’s legitimate business interest in its substantial relationships and good will with business partners and referral sources. However, the appellate court disagreed and reversed the injunction, concluding that “Americare was not entitled to the entry of an injunction barring Hiles from ‘interfering with … Americare’s … referral sources.’” Id. at 454.

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As discussed in prior articles, Florida’s Non-Competition Covenant Statute, § 542.335, permits covenants restraining competition so long as the restrictive covenant meets certain statutory requirements.  One of the statutory requirements is that the party seeking to enforce the restrictive covenant must “plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.” § 542.335(1)(b), Fla. Stat.  Subparagraph (b) provides a non-exclusive list of legitimate business interests that could justify a restrictive covenant, one of which is “extraordinary or specialized training.” The statute, however, fails to offer any guidance as to what type of training is considered “extraordinary or specialized.”  As a Fort Lauderdale non-compete lawyer, Peter Mavrick frequently handles cases where enforcement of a non-compete depends on whether there was “extraordinary” or “specialized” training. A recent judicial decision issued in the Southern District of Florida provides helpful insight for employers to determine whether the training they provide to employees can sufficiently justify a restrictive covenant.

In IDMWORKS, LLC v. Pophaly, 192 F. Supp.3d 1335 (S.D. Fla. 2016), the plaintiff was an information technology company providing corporate identity-and-access management (“IAM”) software solutions.  The company brought a lawsuit seeking an injunction against a former employee for breach of a restrictive covenant when the former employee began working for a client who the employee had provided IAM services for during his employment with the company.  One of the legitimate business interests alleged by the company justifying the restrictive covenant was extraordinary or specialized training.  At the time the company hired the employee, the employee had no prior experience with IAM services.  The company asserted that it provided the employee with substantial training, including a two to three-week formal training session with the employee’s direct supervisor, a conference for Quest APS for which the company covered travel expenses, the company’s subscription to the Oracle platform and Oracle training materials, and an “in-house training program” which the court found to be merely a forum for employees to communicate between themselves about clients and technologies they are using.

Despite the company’s assertions, the court held that such training was not sufficient to justify the restrictive covenant.  According to the court, “training constitutes a legitimate business interest protectable by an injunction only when the training rises to the level of being specialized or extraordinary.  This means that training must go beyond that typically offered in any given industry.”  In declining to enforce the injunction against the employee, the court offered several reasons why the training the employee received did not rise to the level of “specialized or extraordinary.”

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An employer can protect its relationships former clients by establishing that an ongoing business relationship exists with the past client, or by presenting competent and substantial evidence to prove the existence of a substantial relationship within the meaning of § 542.335, Florida Statutes.  Under Florida law, the key issue is that the court will view the relationship with the past client as a “legitimate business interest” under Florida’s non-competition covenant statute.

Employees are privy to the internal mechanics of the relationships between employers and their past clients.  After leaving their employment, former employees sometimes target the employer’s customers or clients. Under Florida law, it is well-established that “the protection of former customers generally does not qualify as a legitimate business interest.” Evans v. Generic Sol. Eng’g, LLC, 178 So. 3d 114, 116 (Fla. 5th DCA 2015). However, if the employer has an agreement with a past client that establishes that the employer will return for future work, courts can view the customer as a legitimate business interest and enforce the non-compete as to the customer. See Id.

In Evans, the Fifth District Court of Appeal refused to enjoin Andrew Chinn, a former independent contractor, and his new employer X-Tech from providing services to the former employer’s past clients. Chinn entered into a non-compete agreement with his former employer, Tech Guys.  The express terms of the non-compete prohibited Chinn, for 1-year, from working directly or indirectly for current or former Tech Guys’ customers after leaving Tech Guys.  Despite the fact that Tech Guys proved that Chinn violated the non-compete by providing services to former Tech Guys clients RRI and E-data, the appellate court refused to uphold the non-compete agreement.  The court explained that Tech Guys did not present competent, substantial evidence as to why it was necessary to enforce the non-compete agreement.

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Florida statutes on non-competition covenants allow courts to modify overbroad non-competition covenants.  For example, a non-competition covenant restricting an employee from competing against the employer in every county in Florida is likely overbroad if the employer conducts business only in Broward County.  Florida statutes, however, allow the court to modify such overbroad non-competition covenants and grant “reasonably necessary” relief, i.e., modify the covenant to apply only to Broward County.

Under Florida contract law, however, courts generally will not rewrite the terms of a contract.  Although Florida statutory law allows courts to modify overbroad non-competition covenants, Florida courts have otherwise refrained from rewriting non-competition covenants.

In Advantage Digital Sys. v. Digital Imaging Servs., 870 So. 2d 111 (Fla. 2d DCA 2003), two employees were bound by non-competition covenants that restricted them from “soliciting” the employer’s customers.  The trial court found the non-competition covenants enforceable and ordered that the employees were prohibited from “having any contact, whatsoever, with any customers of [the employer].”  Advantage Digital Sys., 870 So. 2d at 114-15.  On appeal, the appellate court disagreed with the trial court’s order.  The appellate court held that the trial court’s order went “far beyond prohibiting solicitation” and “essentially and impermissibly rewrites the parties’ agreements by disallowing any ‘contact’ with [the employer’s] customer.  …  Because the noncompetition agreements prohibit only solicitation, that is the only activity that can be the subject” of the court’s order.  Advantage Digital Sys., 870 So. 2d at 115.

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Florida law requires that courts read non-competition covenants in favor of providing reasonable protection to a company’s legitimate business interest and prohibits courts from reading the non-competition covenant narrowly against the restraint.  Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012) provides an example of just how broadly Florida courts could read a non-competition agreement.

In Anarkali, a worker entered into a non-competition covenant with a company in 2008 as part of an employment agreement.  The non-competition covenant restricted the worker from competing with the company for a 2-year term beginning when the worker is “no longer employed by Company.”  Anarkali Boutique, Inc., 104 So. 3d at 1203.  In 2009, the worker’s status with the company changed from employee to independent contractor.  Two years later, in 2011, the worker left the company and opened a competing business.  The company sued to enforce the non-competition covenant.

The trial court found that because the 2-year term of the non-competition covenant would begin to run when the worker was “no longer employed by Company,” the 2-year term began to run in 2009, i.e., when the worker ceased being an employee of the company.  Consequently, the 2-year term expired in 2011, i.e., before the worker opened her own competing business.  Therefore, the trial court held that the non-competition covenant had expired and the company could not now enforce the non-competition covenant.  On appeal, the appellate court disagreed.

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Generally, under Florida statutory law, restrictive covenants, e.g., non-competition covenants, must be signed by the person against whom the covenant will be enforced.  A restrictive covenant cannot be enforced against an individual who did not sign the restrictive covenant.

In Winn-Dixie Stores, Inc. v. Dolgencorp, Inc., 964 So. 2d 261 (Fla. 4th DCA 2007), Winn-Dixie Stores, Inc. (“Winn-Dixie”) entered into a lease with a landlord that granted Winn-Dixie the exclusive right to sell groceries at a particular shopping plaza.  The restrictive covenant in the lease stated that other stores in the plaza could sell groceries only if they did not devote more than 500 square feet to those groceries.  Thereafter, Dolgencorp, Inc. (“Dolgencorp”) leased a location at the plaza and devoted more than 500 square feet to grocery items.  Winn-Dixie sued to enforce the restrictive covenant.  Dolgencorp argued that because it never signed the restrictive covenant, the covenant could not be enforced against Dolgencorp under Florida law.  While the trial court agreed with Dolgencorp, the appellate court found that the restrictive covenant was enforceable against Dolgencorp even though Dolgencorp never signed the covenant.  The appellate court’s decision is rooted in the distinction between personal covenants and real covenants.

A personal covenant is a provision in a contract that creates personal contractual obligations.  For example, a restrictive covenant contained in an employment agreement is a personal covenant.  On the other hand, a real covenant is a provision contained in transaction involving real property—for example, a restrictive covenant contained in a lease of real property.  Generally, if a real covenant touches and  involves the land and was meant to bind all subsequent purchasers of the land, then the real covenant is said to “run with the land” and will bind all subsequent purchasers or lessees of the land who had notice of the covenant.

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Florida law tends to favor enforcement of non-competition covenants.  Under Florida law, non-competition covenants are enforceable if they protect one or more legitimate business interests and if they are reasonable in time, area, and line of business.  In fact, Florida law explicitly forbids courts from considering “any individualized economic or other hardship that might be caused to the person against whom enforcement is sought” when determining whether a non-competition covenant is enforceable.  Fla. Stat. § 542.335(g)(1).

For those reasons, companies might wish to take advantage of Florida’s non-competition laws even when the non-competition contract will be enforced outside of Florida.  In those situations, companies will likely include a “choice of law” provision in their non-competition covenants.  Generally, a “choice of law” contractual provision allows the parties to decide which state’s laws should apply to the contract.

Consider the following example:  A Florida corporation conducts business in New York.  To protect its legitimate business interests, the Florida corporation enters into a non-competition contract with its New York employee.  However, New York’s laws do not favor non-competition covenants to the same extent that Florida’s laws do.  New York law requires courts to consider whether the non-competition contract would impose undue hardship on the employee, a consideration that is forbidden under Florida law.  To take advantage of the Florida law, the Florida corporation includes a “choice of law” provision in the non-competition contract stating that Florida law shall apply to the contract.  That is exactly what a Florida corporation did in Brown & Brown, Inc. v Johnson, 980 N.Y.S.2d 631, 637 (N.Y. App. Div. 4th Dep’t 2014).  The New York appellate court, however, found that New York law, not Florida law, applied to the non-competition contract notwithstanding the contract’s “choice of law” provision.

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Under Florida law, non-competition covenants are generally enforceable if they protect one or more legitimate business interest.  However, certain acts by the employer could defeat the enforceability of the non-competition covenant.  Under contract law, a party’s material breach of a contract will render the entire contract unenforceable against the other party.  In other words, if an employer materially breaches the employment contract—i.e., if the employer fails to pay wages or commissions in accordance with the employment contract—the employee will be released from the non-competition covenant.  There is an exception to that general rule: independent non-competition covenants.

If the non-competition provision of an employment contract is considered “independent,” then the employer’s breach of the employment contract will not affect the non-competition covenant’s enforceability.  Essentially, the independent non-competition covenant will be considered a separate contract.  A Florida district court recently shed some light on what contractual language would suffice to render a non-competition covenant “independent.”

In Richland Towers v. Denton, 2014 Fla. App. LEXIS 3472 (Fla. 2d DCA Mar. 12, 2014), an employer, Richland Towers, sued to enforce its non-competition covenants with two former employees who started a competing business.  Richland Towers, however, failed to pay those employees certain bonuses that were required under the employment contract.  The trial court found that Richland Towers’ failure to pay the contractually required bonuses constituted a prior material breach that essentially destroyed the entire employment contract and released the employees from the non-competition covenant.  The appellate court disagreed.

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