Category: Non-Compete Cases

RESTRICTIVE PERSONAL COVENANTS VS. RESTRICTIVE REAL COVENANTS

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.

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.

RECENT FLORIDA CASE REVERSES TRIAL JUDGE REGARDING “INDEPENDENT” NON-COMPETITION COVENANT

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.

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.

 

ATTORNEY PETER MAVRICK SUCCESSFULLY DEFENDS NON-COMPETITION COVENANT CASE

Under Florida law, non-compete contracts are often held unenforceable due to circumstances of the employer-employee relationship, employee background, or the contract itself. Generally, employers must show they have a “legitimate business interest” to make a non-competition covenant enforceable. A legitimate business interest could include specialized training the employer provided the employee, a sort of investment in the employee.

In a case handled by attorney Peter Mavrick, an employer wanted to enforce a noncompete covenant against Mr. Mavrick’s client, an employee that had received some training from his former eimployer. However, the training was minimal. Most importantly, the employee had many years of experience in the employer’s industry before he signed the noncompetition contract. It was because of that substantial industry experience that the employer hired Mr. Mavrick’s client. The employee was highly competent because of his experience.

Based on case law invalidating a noncompete contract where the employee’s specialized knowledge preceded his contract, attorney Peter Mavrick successfully argued that the noncompetition covenant was invalid. Mr. Mavrick’s client was allowed to continue his own business in competition with his former employer.

Attorney Peter Mavrick practices in the field of business and labor/employment litigation in Fort Lauderdale, Florida. His law office phone number is (954) 564-2246. Information contained in this article is accurate as of September 2008. This article is for general information use only, and does not substitute for specifically tailored legal advice.