Category: Non-Compete Agreements

DISTRICT COURT OF APPEAL NON-COMPETE LAW SPLIT RESOLVED: IN HOME HEALTH CARE SERVICE INDUSTRY, REFERRAL SOURCES ARE PROTECTABLE LEGITIMATE BUSINESS INTERESTS

The Mavrick Law Firm’s earlier publication, Florida Non-Compete: Supreme Court To Resolve Conflicting Appellate Court Decisions, examined a conflict between the Fourth District Court of Appeal and the Fifth District Court of Appeal that centered around of the protection of referral sources in the home healthcare industry by Florida’s Non-Compete Statute, § 542.335, Fla. Stat. The Fourth DCA had an expansive view of the statute, finding § 542.335’s enumerated list of legitimate business interests to be non-exclusive. In so doing, the Fourth DCA distinguished referral sources from unidentified prospective patients: using a context-based analysis that viewed the substantial relationships with the referral sources as “the lifeblood” of the industries’ employers. Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060, 1067 (Fla. 4th DCA 2015). Conversely, the Fifth DCA found § 542.335’s enumerated list of legitimate business interests to be limited to the plain language of statute: finding that “unidentified prospective patients, and correspondingly referring physicians, do not qualify as legitimate business interests for the purpose of enforcing restrictive covenants.” Hiles v. Americare Home Therapy, Inc., 183 So. 3d 449, 454 (Fla. 5th DCA 2015). The Mavrick Law Firm regularly represents businesses, their owners, and former employees who become entrepreneurs in non-compete disputes in Fort Lauderdale, Miami, and Palm Beach. Mr. Mavrick has successfully handled many cases concerning enforcement of and defense against non-compete agreements.

Resolving the conflict, the Florida Supreme Court, in White v. Mederi Caretenders Visiting Services of Se. Florida, LLC, SC16-28, 2017 WL 4053930 (Fla. Sept. 14, 2017), sided with the Fourth DCA and held that “home health service referral sources can be a protected legitimate business interest under the statute.” Id. at *1. The court explained that section 542.335’s listed legitimate business interests are illustrative and non-exhaustive. In other words, courts are able to expand the list of “legitimate business interests” beyond those explicitly enumerated in Florida’s non-compete statute. Thus, the statute can protect non-enumerated legitimate business interests in certain circumstances, which depend upon industry-specific and factual contexts. Accordingly, employers now have an easier task of tailoring restrictive covenants to protect their context-specific legitimate business interests.

At the beginning of its analysis, the court first analyzed section 542.335 to determine if the statute provides protection for non-enumerated interests. Quashing the Fifth DCA’s decision in Hiles, the court explained that “[r]eferral sources are simply not antithetical to the plain language of the statute because they are different interests than those contemplated by section 542.335(1)(b)3.” Id. at*5. The court further explained that “barring the protection of interests not specifically precluded by the statute is problematic because that would essentially convert section 542.335(1)(b)3 into an unintended and silent limitation on the statute’s non-exhaustive list definition.” Id. at *6. Further, the court sought out the legislative intent of the § 542.335 by reviewing the plain language of the statute: finding that the list of legitimate business interests was non-exhaustive based on the statute’s language, which provides that “[t]he term ‘legitimate business interest includes, but is not limited to…” Id. The court concluded that the list of legitimate business interests was illustrative and does not limit judicial finding of additional legitimate business interests: requiring courts to “engage in fact -and industry-specific determinations when construing non-enumerated interests.” Id. at *7.

Section 542.335 ’s purpose is to prevent “unfair competition by protecting crucial business interests.” 2017 WL 4053930 at *7. While the Florida Supreme Court expanded § 542.335’s protection of legitimate business interests, the court stated that the expansion was not without limitation. The Florida Supreme Court instructed the lower courts to balance an employer’s legitimate business interests with “a person’s inalienable right to work.” Id. at*8 (citing Art. I, § 2, Fla. Const.). Moreover, the court reminded potential litigants that “the scope of unprotected business interests is well established” and that the statute does not protect non-compete agreements “whose sole purpose is to prevent competition per se” Id. Accordingly, “[f]or an employer to be entitled to protection, ‘there must be special facts present’ over and above ordinary competition such that, absent a non-competition agreement, ‘the employee would gain an unfair advantage in future competition with the employer.’” Id. In the same vein, the court highlighted § 542.335’s protection from overly restrictive non-compete agreements. “Section 542.335 commands courts to modify” non-competition agreements that are “overbroad, overlong, or otherwise not reasonably necessary to protect” a “legitimate business interest.” Id. at 9. Therefore, employers should not view the court’s endorsement of an expansive view of § 542.335’s protection as a license to preclude all competition from a former employee. “[T]he fact that referral sources [or other critical business interests] can constitute a legitimate business interest does not automatically satisfy all possible factual issues” as business interests that are capable of protection in some circumstances could unprotected in others. 2017 WL 4053930 at *9.

Even though the Florida Supreme Court’s holding in White explicitly concerned referral sources in the home health service industry, the holding has applicability outside of the home health service industry. A business interest can be legitimate and protectable in some industries and in some factual scenarios, but not in others. The court explained that because section 542.335 provides for “a plethora of [non-enumerated] protected legitimate business interests” that are applicable in a variety of commercial contexts, courts are free to examine the “legitimacy of a particular business interest – in conjunction with the industry context and evidence adduced.” 2017 WL 4053930 at *9. Thus litigants disputing the legitimacy of previously unprotected business interests must present evidence that will allow the trial courts to engage in the context-based factual analysis.

In sum, the Florida Supreme Court’s decision in White expanded protections for employers, but it also tempered the expansion with an industry-specific context-based analysis that is balanced with the ideals of fair competition. Employees seeking to avoid non-compete agreements should be aware of the fact that employers have an easier task of defining legitimate business under this more expansive interpretation of the statute. Employers, however, should be aware of the fact that many legitimate interests are well-defined, and to the extent that additional or uncontemplated protectable legitimate business interests exist, they will be subject to a context-based analysis that will be balanced against consideration of the former employee’s inalienable right to work.

Peter T. Mavrick has successfully represented many businesses and individuals in 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.

NON-COMPETE AGREEMENTS: BUSINESSES SHOULD INCLUDE THIRD-PARTY ENFORCEMENT PROVISIONS IN THEIR NON-COMPETE AGREEMENTS

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.

Peter T. Mavrick has successfully represented many businesses in 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.

FLORIDA NON-COMPETE: SUPREME COURT TO RESOLVE CONFLICTING APPELLATE COURT DECISIONS

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.

The Fifth District Court of Appeal relied on its earlier decision in Florida Hematology & Oncology v. Tummala, 927 So. 2d 135 (Fla. 5th DCA 2006), to hold that “unidentified prospective patients, and correspondingly referring physicians, do not qualify as legitimate business interests for the purpose of enforcing restrictive covenants.” 183 So. 3d at 454. The Hiles court found that referral sources and referring physicians supplied “a stream of unidentified prospective patients” with whom the former employer “had no prior relationship.” Id.  Thus, the Fifth DCA refused to “to accept referral sources” as “statutorily-protected legitimate business interest[s]” because doing so would “completely circumvent the statutory directive that prospective patients are not to be recognized as a legitimate business interest.” Id. The court found that Americare’s protected “clients” or “customers” are the patients that it actually treats. See id. Thus, the Fifth DCA views referral sources as merely conduits to supply unidentified prospective clients, customers, or patients to various entities: a designation that is not within the ambit of § 542.335’s protection. See id

Facing an identical factual scenario to the Hiles case, the Fourth District Court of Appeal expressed a contrary view in Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015). In Infinity the 4th DCA relied on the 3rd DCA’s reasoning in Southernmost Foot & Ankle Specialists, P.A. v. Torregrosa, 891 So. 2d 591n (Fla. 3d DCA 2004), to address “whether ‘referral sources’ for home health services are a protectable ‘legitimate business interest’ under section 542.335.” The Fourrth DCA took a more expansive view of the statute, finding that “Section 542.335, however, clearly states that the legitimate business interests listed in the statute are not exclusive.” In so doing, the Fourth DCA empowered itself to “examine the particular business plans, strategies, and relationships of a company in determining whether they qualify as a business interest worthy of protection.” Further, the Fourth DCA distinguished referral sources from unidentified prospective patients: categorizing the substantial relationships with the referral sources as “the lifeblood” of the employer. See id. Thus, the Fourth DCA held that “that referral sources are a protectable legitimate business interest under section 542.335, Florida Statutes.” Id. at 1067.

Employers throughout the state should await the Florida Supreme Court’s forthcoming ruling in Americare Home Therapy, Inc., Etc. v. Hiles and determine the best way to protect their referral sources as legitimate business interests.

Peter T. Mavrick has successfully represented many businesses in 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.

FLORIDA NON-COMPETE ENFORCEMENT: EXTRAORDINARY OR SPECIALIZED TRAINING AS A LEGITIMATE BUSINESS INTEREST

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.”

First, the court found that any actual training the employee received was typical in the information technology industry.  Second, access to the Oracle platform could not be considered extraordinary or specialized because many other companies have access to the same database of training materials and provide the same access to their employees. Third, the use of such training materials was optional.  As stated by the court, “optional training does not constitute a legitimate business interest sufficient to justify injunctive relief.”  Based on the foregoing, the court held that the training received by the employee was insufficient to justify the restrictive covenant.

Although IDMWORKS, LLC v. Pophaly was in the context of the information technology industry, it provides useful information for all industries regarding “extraordinary or specialized training.”  In essence, if an employer seeks to enforce of restrictive covenant based on their legitimate business interest in “extraordinary or specialized training,” such training must surpass the typical training an employee normally receive at other companies within the industry.

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.

Are non-compete agreements always enforceable?

Non-compete agreements are not always enforceable. Florida typically requires that all competition be allowed, and there shall be no restriction of competition, but there’s a separate statute in Florida, which is 542.335 Florida statutes that governs non-compete agreements. That statute requires that there be certain legitimate business interests of the employer set out in the statute such as for example, the protection of trade secrets or the protection of confidential information. The employer has to plead and prove these to be able to force a non-compete covenant.

WHAT IS A COVENANT NOT TO COMPETE?


A covenant not to compete is a promise not to compete. Any time the word covenant is used, covenant is simply a promise. A covenant not to compete is a contractual obligation or a promise not to compete against someone or a company. Typically, non-compete covenants occur in employment contexts where an employer wants to protect its employees from competing against the employer after they depart their employment. It also incurs in sales of businesses, where a business is sold and the buyer of the business wants to ensure that the seller doesn’t simply open up a competing business for it close by, which would defeat the entire purpose of buying the business.