1. Independent contractors are not subject to federal or state labor and employment laws like employees are; 2. The procedure for hiring independent contractors is different from employee hiring practices; 3. For tax purposes, independent contractors receive a 1099-MISC while employees receive a W-2; 4. Tax reporting requirements for businesses are different; 5. Employees earn an hourly rate or salary while the manner in which an independent contractor is compensated may vary depending on the terms of the contract or agreement entered into with the employer;

To determine whether an individual falls into the category of employee or independent contractor, the Eleventh Circuit’s decision in Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311 (11th Cir. 2013), states that court’s look at the “economic reality” of an employment relationship. However, during the employment relationship, an individual’s status can change from employee to independent contractor. Some may think that an individual’s change in status from employee to independent contractor relieves the individual of any obligations they owed to their employer as an employee, including any covenants not to compete executed as part of the individual’s hiring as an employee. Peter Mavrick is a Fort Lauderdale non-compete attorney who has successfully argued on several occasions, this is not the case under Florida law.

First, despite popular belief, independent contractors are subject to covenants not to compete just like employees are. Florida’s Non-Competition Covenant Statute, § 542.335, states at subsection (d):

In determining the reasonableness in time of a postterm restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions: 1.  In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of all or a part of:

a. The assets of a business or professional practice, or b. The shares of a corporation, or c. A partnership interest, or d. A limited liability company membership, or e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.

Second, in Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012), the Florida Fourth District Court of Appeal held that a change in status from employee to independent contractor does not affect the validity of a covenant not to compete where the underlying agreement provides that any subsequent change or changes in duties, salary, or compensation will not affect the validity or scope of the restrictive covenant. Thus, if you are considering changing the status of some of your employees to independent contracts, you can be at ease knowing that any non-compete agreements initially signed by the employee will still be effective, so long as the non-compete covers such a change in status or duties.

Peter Mavrick is a Fort Lauderdale non-compete lawyer who has successfully represented many businesses in Florida non-competition covenant litigation in the Broward, Miami-Dade, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeal. This article is not 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.

The unclean hands doctrine is an equitable defense that precludes a plaintiff from recovering in equity due to some sort of wrongdoing or improper conduct on the part of the plaintiff. Peter Mavrick is a Miami non-compete lawyer who has won non-compete litigation in Miami-Dade Circuit Court through the unclean hands affirmative defense. Although “unclean hands” is a defense exclusive to claims seeking equitable relief, it has proven to be very useful in the employment context, particularly in cases where an employer is seeking to enforce a covenant not to compete. Under Florida law, if a former employer engaged in wrongdoing that caused the entrepreneur’s separation from employment, then the employer will be precluded from enforcing a covenant not to compete against the former employee. Such was the case in Bradley v. Health Coal., Inc., 687 So. 2d 329 (Fla. 3d DCA 1997).

In Bradley, the defendant was employed as a salesperson for the plaintiff’s blood plasma products and signed a covenant not to compete contained within his employment contract. After the defendant’s employment with plaintiff ended, plaintiff sought to enforce the covenant not to compete once it discovered that the defendant had subsequently gone to work for a competitor. The trial court enforced the covenant not to compete and entered an injunction against the defendant. However, in entering the injunction, the trial court declined to consider the defendant’s defense that there should be no injunction because defendant was forced to resign from his employment with plaintiff after he refused the plaintiff’s instructions to engage in improper business practices. Specifically, defendant contended he refused to resell certain plasma products that had been returned by a customer because he felt they were unsafe for medical use due to the handling during shipping. Furthermore, defendant asserted that he refused to obey an instruction to alter certain invoices to charge higher prices than the customers had agreed to.

On appeal, the Florida Third District Court of Appeal held that the trial court’s failure to consider the defenses asserted by the defendant regarding his forced resignation was error and remanded the case for a hearing on same. As stated by the Third DCA:

In our view, if the employer ordered the employee to sell unfit products, or to alter invoices so as to defraud customers, and the employee was forced to resign for refusing to do so, then the employer would have unclean hands and would not be entitled to an injunction.

The Bradley decision provides a useful avenue to pursue in cases where an employer seeks to prevent a former employee from opening a competing business. If the employee proves that his or her former employer engaged in improper conduct leading to the employee’s separation of employment, then the former employer will likely be precluded from enforcing a non-compete agreement. However, the facts of each case will be determinative of whether this defense is available. If you are an entrepreneur currently bound by a covenant not to compete with a former employer preventing you from opening your business, or if you simply would like more information regarding covenants not to compete in general, the Mavrick Law Firm is available to help.

The Mavrick Law Firm has successfully represented many businesses in Florida non-competition covenant litigation in the Miami-Dade, Broward, and Palm Beach County areas encompassed by the Third and Fourth District Courts of Appeal, as well as Hillsborough, Sarasota, and other counties encompassed by the Second Circuit Court of Appeal. This article is not 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.

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.

More recently, in Heiderich v. Fla. Equine Veterinary Servs., 86 So. 3d 527, 530 (Fla. 5th DCA 2012), Dr. Heiderich, a veterinarian, signed a non-competition covenant with her employer, which restricted her from owning or being employed by any veterinary practice located within a 30-mile radius of the employer’s place of business. After ending her employment, Dr. Heiderich started her own veterinarian practice outside the 30-mile radius of the non-competition covenant. However, Dr. Heiderich delivered her veterinarian services to customers within the 30 mile radius. The former employer sued to enforce the non-competition covenant and argued that the covenant prohibited Dr. Heiderich from “practicing” veterinarian services within the 30-mile radius. While the trial court agreed with the employer, the appellate court disagreed.

The appellate court in Heiderich held that the non-competition covenant restricted Dr. Heiderich only from owning or being employed by a veterinarian practice located within the 30-mile radius; it did not restrict her from practicing veterinarian services within the 30-mile radius. Because Dr. Heiderich opened her business outside the 30-mile radius, she did not breach the non-competition covenant.

As discussed in a previous article, Florida law requires that courts read non-competition covenants in favor of providing reasonable protection to a company’s legitimate business interests. However, as the above cases demonstrate, Florida courts generally will not grant protection beyond what the terms of a non-competition covenant provide.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation. This article is not 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; Email: peter@mavricklaw.com.

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.

The appellate court found that the worker’s change from employee to independent contractor did not cause the 2-year non-competition period to begin running. Instead, the non-competition period began to run when the worker left the company in 2011. The appellate court based its decision in part on Florida statutory law that requires courts to read non-competition covenants “in favor of providing reasonable protection to all legitimate business interests” and prohibits courts from reading non-competition covenants “narrowly, against the restraint, or against the drafter of the contract.” Fla. Stat. § 542.335(1)(h). Reading the agreement in accordance with Florida law, the appellate court held that the “obvious purpose” of the non-competition agreement “was to preclude the worker from competing with the company after the company trained the worker and allowed her to build her own clientele. It would be unreasonable to construe the contract as having the two-year non-compete period begin to run while the company still was employing the worker as an independent contractor … but have the non-compete period expire just before the worker leaves the company to start her own competing business. To hold otherwise would lead to absurd conclusion.” Anarkali Boutique, Inc., 104 So. 3d at 1205.

For employees, the Anarkali decision provides an example of how broadly courts will read a non-competition covenant. Florida law on non-competition covenants, unlike the law in other states, forbids courts from reading non-competition covenants narrowly. Consequently, Florida law on non-competition covenants tends to be employer-friendly. As explained in a previous article, had the same facts been presented before a court in another jurisdiction, the outcome might have differed.

For employers, Anarkali serves as yet another example of how proper drafting could prevent incurring substantial legal fees. Although the non-competition covenant in Anarkali was read in favor of the company, the company prevailed only at the appellate level. Had the employment contract included a provision regarding the worker’s change to independent contractor status, the argument in Anarkali could have been avoided.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation. This article is not 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; Email: peter@mavricklaw.com.

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.

The appellate court in Winn-Dixie Stores, Inc. found that the covenant contained in Winn-Dixie’s lease “ran with the land.” The restrictive covenant touched and involved the land because it affected the mode and enjoyment of the land. The restrictive covenant also was meant to bind all subsequent purchasers and lessees because the lease contained a provision stating that “it is a covenant running with the land.” Winn-Dixie Stores, Inc., 964 So. 2d at 264. Finally, because Dolgencorp is an experienced commercial tenant with 7,800 stores in 32 states, “Dolgencorp had reason to know of the existence of Winn-Dixie’s restrictive covenant,” and therefore had sufficient notice. Winn-Dixie Stores, Inc., 964 So. 2d at 266. Because the restrictive covenant was a real covenant that ran with the land, it could be enforced against Dolgencorp even though Dolgencorp never signed the restrictive covenant.

More recently, Big Lots Stores, Inc. attempted a similar argument against Winn-Dixie’s enforcement of its restrictive covenants in Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 2014 U.S. App. LEXIS 4143 (11th Cir. Mar. 5, 2014). The federal appellate court, applying Florida law, held that because Winn-Dixie’s restrictive covenant was a real covenant that ran with the land, courts can “enforce a covenant running with the land against non-signatory co-tenants.” Winn-Dixie Stores, Inc., 2014 U.S. App. LEXIS 4143, at *73.

The above cases serve as a reminder that Florida law on restrictive covenants recognizes a distinction between personal covenants and real covenants. While restrictive personal covenants must be contained in a writing signed by the person against whom the covenant will be enforced, restrictive real covenants that run with the land can be enforced against co-tenants who have not signed the restrictive covenant.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation. This article is not 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; Email: peter@mavricklaw.com.

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.

Under New York law, a “choice of law” provision will be upheld if it bears a reasonable relationship to the parties or the transaction and if it is not “truly obnoxious” to New York’s public policy. Considering New York’s public policy, the court in Brown & Brown, Inc. refused to uphold the “choice of law” provision and held that New York law will apply to the non-competition contract. Specifically, the New York court found that “Florida law prohibiting courts from considering the hardship imposed on the person against whom enforcement is sought is ‘truly obnoxious’ to New York public policy.” Brown & Brown, Inc., 980 N.Y.S.2d at 638.

New York was not the first state to find that Florida non-competition law was contrary to the respective state’s public policy. In 2012, a Georgia appellate court found that “applying Florida law, the [the non-competition] covenants would almost certainly be upheld, despite the fact that they violate applicable Georgia law.” Carson v. Obor Holding Co., LLC, 318 Ga. App. 645, 654 (Ga. Ct. App. 2012). Consequently, the Georgia court held that the non-competition contract’s forum-selection clause selecting Florida as the forum state was unenforceable because Florida non-competition law was against Georgia public policy.

Likewise in 2008, an Illinois appellate court found that “Florida law, which specifically prohibits considering the hardship a restrictive covenant imposes upon an individual employee, is contrary to Illinois’s fundamental public policy.” Brown & Brown, Inc. v. Mudron, 379 Ill. App. 3d 724, 728 (Ill. App. Ct. 3d Dist. 2008). The Illinois appellate court therefore found that Illinois law applied to the non-competition contract despite the contract’s “choice of law” provision. In 2001, a federal court in Alabama also refused to uphold a “choice of law” provision in a non-competition contract because it found that Florida non-competition law was “antithetical to Alabama’s general policy against covenants not to compete.” Unisource Worldwide, Inc. v. S. Cent. Ala. Supply, LLC, 199 F. Supp. 2d 1194, 1201 (M.D. Ala. 2001).

As the above cases show, Florida companies seeking to enforce a non-competition covenant outside of Florida might not be able to take advantage of Florida’s non-competition laws even with a choice of law provision. Because a choice of law provision cannot guaranty that Florida law will apply outside of Florida, proper drafting of the non-competition contract is key in those situations.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation. This article is not 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; Email: peter@mavricklaw.com.

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.

The appellate court held that the following two provision in the employment contracts rendered the non-competition covenants “independent”: (1) “Each restrictive covenant … shall be construed as a covenant independent of any other covenant”; and (2) “the existence of any claim or cause of action by the Employee against the Corporation … shall not constitute a defense to the enforcement by the Corporation of any other covenant.” According to the appellate court, those two provisions made the non-competition covenants “independent.”

Every case is different, and a court’s construction of contractual terms depends on many factors. However, as the court in Richland Towers found, if an employment contract contains express provisions that (1) the non-competition covenant is independent of other provisions and that (2) an employee’s claims against the employer will not constitute a defense to the enforcement of the non-competition covenant, then the non-competition covenant will likely be considered “independent.”

Peter T. Mavrick represents clients in non compete agreement cases in Fort Lauderdale, Palm Beach, and Miami Dade. This article is not 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; Email: peter@mavricklaw.com.