The idea that a violation of the FLSA can prevent against a former employer’s enforcement of a restrictive covenant is rooted in two separate principles. The first principle was discussed by the Florida Fourth District Court of Appeal in Northern Trust Investments, N.A. v. Domino, 896 So. 2d 880, 882 (Fla. 4th DCA 2005), stating in pertinent part:

A party is not entitled to enjoin the breach of a contract by another, unless he himself has performed what the contract requires of him so far as possible; if he himself is in default or has given cause for nonperformance by defendant, he has no standing in equity…Having committed the first breach, the general rule is that a material breach of the Agreement allows the non-breaching party to treat the breach as a discharge of his contract liability. If the employer wrongfully refuses to pay the employee his compensation, the employee is relieved of any further obligation under the contract and the employer cannot obtain an injunction.

The principle discussed by the Fourth DCA in Northern Trust is that a prior material breach of an employment agreement by an employer prevents the employer from being able to enforce a restrictive covenant contained in the agreement against the former employee. Based on the foregoing, the Fourth DCA denied the employer’s temporary injunction against the former employee because the employer breached the employment agreement by failing to properly compensate the former employee.

The second principle is a one of contract law that was discussed by the Florida Supreme Court in Shavers v. Duval County, 73 So. 2d 684 (Fla. 1954), stating:

It has long been firmly established that the laws existing at the time and place of the making of the contract and where it is to be performed which may affect its validity, construction, discharge and enforcement, enter into and become a part of the contract as if they were expressly referred to or actually copied or incorporated therein.

Florida appellate courts also have applied this principle since the Supreme Court’s decision in Shavers. See Florida Beverage Corp. v. Div. of Alcoholic Beverages & Tobacco, Dept. of Bus. Regulation, 503 So. 2d 396 (Fla. 1st DCA 1987); General Development Corporation v. Catlin, 139 So. 2d 901 (Fla. 3d DCA 1962).

Because the laws existing at the time and place of the making of the contract become part of the contract, that means that the FLSA is incorporated into every employment contract. Thus, any violations of the FLSA by an employer could constitute breach of the employment contract which, as discussed supra, could prevent the enforcement of any restrictive covenants contained in the employment contract. If you are an entrepreneur engaged in non-compete covenant litigation with a former employer or you simply want more information regarding non-compete agreements, Peter Mavrick is a Miami non-compete lawyer who can assist you.

The Miami non-compete attorneys at the Mavrick Law Firm have 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.

The term “legitimate business interest” includes, but is not limited to: 1. Trade secrets, as defined in s. 688.002(4). 2. Valuable confidential business or professional information that otherwise does not qualify as trade secrets. 3. Substantial relationships with specific prospective or existing customers, patients, or clients. 4. Customer, patient, or client goodwill associated with: a. An ongoing business or professional practice, by way of trade name,trademark,service mark,or “trade dress”; b. A specific geographic location; or c. A specific marketing or trade area. 5. Extraordinary or specialized training.

Although the statute provides this list of potential legitimate business interests, the list, by its own wording, is non-exhaustive. As such, businesses may plead other legitimate business interests that a court could find sufficient to justify restrictive covenants contained in their agreements. This was the case in Balasco v. Gulf Auto Holding, Inc., 707 So. 2d 858 (Fla. 2d DCA 1998).

In Balasco, a former employee appealed the trial court’s entry of an injunction in favor of his former employer, Courtesy Toyota (“Courtesy”), based on a restrictive covenant contained in the subject employment agreement. One of the employee’s arguments was that the court failed to consider whether the restrictive covenant sought to protect a legitimate business interest. However, Courtesy’s president testified at the injunction hearing concerning the necessity of the agreement. According to Courtesy’s president, “rather than recycling sales personnel from other dealerships, Courtesy hires personnel with little or no sales experience and invests considerable money and time to teach them the Courtesy way of selling cars. This investment includes the expense of a full-time, in-house training manager, as well as outside trainers. Courtesy’s president explained that the restrictive covenant “was intended to prevent substantial drops in production triggered by the loss of experienced sales associates who are lured away by managers formerly employed by the dealership.” Courtesy’s president further testified that “when productive associates leave they are replaced with ‘raw recruits’ who may take up to six months to develop…[and] that losing experienced sales associates has a negative impact on Courtesy’s productivity, which in turn diminishes staff compensation and morale.” Based on this testimony, Florida’s Second District Court of Appeal held that “the agreement furthers the legitimate business interests of promoting productivity and maintaining a competent and specialized sales team.”

The Second DCA’s decision in Balasco provides assurance for businesses who utilize non-compete agreements that such agreements can be upheld even if they are not supported by the legitimate business interests enumerated in Section 542.335, Fla Stat., supra. Pleading and proving the existence of legitimate business interests will differ for each business and will depend on factors such as the relevant industry and competition therein, the types of customers or clients dealt with, or the specific duties of the employee bound by the restrictive covenant, among other things. If you have questions regarding potential legitimate business interests that could justify your restrictive covenants or restrictive covenants you may be bound by, the Miami non-compete attorneys at the Mavrick Law Firm are available to answer such questions.

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.

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.