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.

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.