The Mavrick Law Firm has successfully represented clients in many non-competition covenant cases. Most cases involved representing the new business, employer, and former employee threatened with a lawsuit. Non-competition covenants often can be successfully challenged on the grounds that they are invalid or overbroad.
Non-compete contracts contravene Florida’s general public and statutory policy encouraging free enterprise and competition. They are allowed as an exception to that policy under certain circumstances. They can be enforced lawfully and bar former employees from competing or working for a competitor. Whether a particular non-compete covenant is enforceable requires examination of the wording of the non-compete contract, the background and details of the employment relationship leading to the departure of the employee, and the legal basis for the non-competition contract under Florida statutory and case law. Peter Mavrick is a Fort Lauderdale non-compete lawyer who regularly represents clients in non-compete litigation.
Non-compete cases arise in several contexts. Former employers often file cases against former employees and their new employers alleging breach of non-competition covenants, and the Mavrick Law Firm has successfully defended the new business or new employer. These cases are often on short-notice and require a rapid understanding of the case facts and legal analysis and an appearance in court at a temporary injunction hearing on whether the court should order immediate closure of the new business or termination of the former employee by his or her new employer. Cases arise in other contexts too. Sometimes former employees have started their own business in competition with the former employer, and then they receive a threatening letter from a law firm demanding that the new business stop competing. Sometimes the former employer interferes with the business relationships of the new business formed by the former employees. The Mavrick Law Firm has successfully represented many start-up businesses by initiating litigation against the former employer and asking the court to determine that the non-competition contract is invalid and stop the interference with business relationships of the new business. Finally, The Mavrick Law Firm also has successfully represented employers by preparing non-competition contracts and enforcing non-competition contracts.Non-Compete Cases and Temporary Injunction Litigation
An injunction is a court order that requires a party to refrain from doing something or, alternatively, requires a party to do something. Non-compete litigation typically involves a temporary injuction motion. In the temporary injuction motion, a former employer typically asks the Judge to order a former employee to stop competing against the employer for a specified time-frame. In cases where a person has purchased a business, a temporary injuction motion asks the Judge to order the seller to stop competing against the purchased business for a particular time-frame.
Under certain conditions, post-employment restrictive covenant agreements are valid restraints of trade or commerce. Section 542.335, Florida Statutes, which took effect on July 1, 1996, contains a comprehensive framework for analyzing, evaluating, and enforcing restrictive covenants contained in employment contracts. A violation of an enforceable restrictive covenant creates a presumption of irreparable injury. Florida's non-compete statute employs the term "restrictive covenants" and includes all contractual restrictions, such as non-competition agreements, non-solicitation agreements, confidentiality agreements, exclusive dealing agreements, and all other contractual restrainsts of trade. If valid, a restrictive covenant may be enforced by temporary and permanent injunctive relief. See section 542.335(1)(j), Florida Statutes.
Section 542.335(1), Florida Statutes, permits enforcement of contracts that restrict or prohibit competition, but only "so long as such contracts are reasonable in time, area, and line of business ...." The statute also requires "that any restrictive covenant be set forth in writing signed by the person against whom enforcement is sought, and that the restraint be shown to be reasonably necessary to protect ... legitimate business interests justifying the restriction." The party seeking enforcement of the non-compete agreement must present a prima facie case that the restrictions are reasonably necessary to protect its legitimate business interests. See § 542.335(1)(c), Florida Statutes. The opposing party then has the burden of proving the contractual restraint is overbroad, overlong, or otherwise not reasonably necessary to support the restriction.How Non-Compete Cases are Handled
Legal representation begins fundamentally with listening to the client. It is the client’s objective that needs to be satisfied. Attorney Peter Mavrick begins by reviewing the non-compete contract carefully along with any other related employment or business contracts. Mr. Mavrick meets with the client to ascertain all case facts and determine what further additional documents and witnesses will be needed or helpful to the representation. It is critical to the representation to understand the statutory and case law governing enforcement of non-competition contracts. Non-compete cases present mixed questions of facts and law. In many cases, non-compete contracts can be invalidated because other laws have been violated. For example, in a recent case in the health-care industry, Mr. Mavrick was able to prove violations of health-care and insurance statutes that invalidated the non-compete contract. In other cases, Mr. Mavrick was able to prove highly relevant violations of labor laws that invalidated the non-compete contract and formed the basis of a counterclaim. For this same reason, when Mr. Mavrick represents clients seeking to enforce non-compete contracts, he carefully examines the facts to ensure enforceability and then prepares the case to stop the unlawful competition.
Non-compete covenant cases often move quickly, and trial court Judges need to make decisions without the benefit of full discovery. In order to obtain a temporary injunction, the plaintiff is required to establish (1) the likelihood of irreparable harm, (2) the unavailability of an adequate remedy at law, (3) substantial likelihood of success on the merits, and (4) that the injunction will serve the public interest. The party moving for a tempoary injunction must demonstrate substtantional likelihood of success on the merits as to asserted affirmative defenses as well as to elements of plaintiff's prima facie case. Cordis Corp. v. Prooslin, 482 So.2d 486 (Fla. 3d DCA 1986) citing Metro-Goldwyn-Mayer, Inc. v. Showcase Atlanta Cooperative Productions, 479 F.Supp. 351 (N.D. Ga. 1979).
In a great deal of non-compete litigation, the battle is over whether the plaintiff has a “substantial likelihood of success on the merits.” The Mavrick Law Firm has successfully challenged non-compete contracts because the contract is itself invalid or has been rendered invalid due to conduct of the plaintiff after the covenant was signed. Businesses violate various laws that can invalidate the non-competes. Often the non-competes are not worded in a manner that will allow enforcement. Sometimes there is no legitimate business interest in the non-compete and therefore there can be no injunction to enforce the non-compete contract.
Valid Non-Compete Agreements Under Florida Law can Prohibit Only “Unfair Competition” Not “Ordinary Competition”
Florida Statutes section 542.335 governs restrictive covenants, also called “non-compete” covenants. Section 542.335(1)(a), Florida Statutes, requires that “[t]he person seeking enforcement of a restrictive covenant shall plead and prove one or more legitimate business interests justifying the restrictive covenant.” Case law interpreting the statute states that “ordinary competition” is not prohibited, and the statute allows enforcement of a non-compete covenant only when there is “unfair competition.” In White v. Mederi Caretenders Visiting Servs. of Se. Fla., LLC, 226 So. 3d 774,784–85 (Fla. 2017), the Florida Supreme Court explained in pertinent part:
…[A] “legitimate business interest” is an identifiable business asset that constitutes or represents an investment by the proponent of the restriction such that, if that asset were misappropriated by a competitor (i.e., taken without compensation), its use in competition against its former owner would be “unfair competition.” Put another way, a “legitimate business interest” is a business asset that, if misappropriated, would give its new owner an unfair competitive advantage over its former owner …Section 542.335 does not protect covenants ‘whose sole purpose is to prevent competition per se’ because those contracts are void against public policy. Colucci, 918 So.2d at 440. For 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.’Legitimate Businesss Interests Supporting a Florida Non-Compete Contract
Florida’s non-compete statute specifically states that a non-compete “not supported by a legitimate business interest is unlawful and is void and unenforceable.” The meaning of what is a “legitimate business interest” has been the source of a great deal of litigation. Florida’s non-compete statute does not define all possible “legitimate business interests,” but the statute does state that the following will qualify as legitimate to enforce a non-compete:
- “Trade secrets” as defined by separate Florida statute;
- Valuable confidential business or professional information that does not otherwise qualify as trade secrets;
- Substantial relationships with specific prospective or existing customers, patients, or clients;
- Customer, patient, or client goodwill; and
- Extraordinary or specialized training.
A non-solicitation covenant typically involves a party's promise not to solicit another party's customers for a specified period of time. Florida's non-competition statute allows non-solicitation covenants in certain circumstances, including, for example, to protect the purchaser of a business from the seller raiding the clients of the business or to protect an employer from a former employee raiding the employer's customers. In Brown & Brown, Inc. v. Ali, 494 F.Supp. 943 (N.D. Ill. 2007), the court applied Florida law and held: "There is little question under Florida law that an employer has a legitimate business interest in prohibiting solicitation of its customers with whom the employee has a substantial relationship." Florida's Second District Court of Appeal in Atomic Tattoos, LLC v. Morgan, 45 So.3d 63 (Fla. 2d DCA 2010), explained that "the right to prohibit direct solicitation of existing customers is a legitimate business interest, and a covenant not to compete which includes a non-solicitation clause is breached when a former employee directly solicits customers of his former employer."
The starting point for analyzing what exactly is meant by the term "non-soliciation" is the wording of the contract. Courts, however, have interpreted the meaning of this term in cases when the contract does not clearly define "non-solicitation." Generally, when a former employee has not enticed the customer and the customer seeks to hire the former employee's services, that will not constitute prohibited solicititation. However, prohibited solicitation can include a transaction in which the former employee was proactive, regardless of whether the customer or former employee initiated the transaction. In other words, a former employee's actions that entice a customer can constitute prohibited solicitation under Florida law, even when the customer made the first contact and reached out to the former employee. For example, in Scarbrough v. Liberty National Life Insurance Co., 872 So.2d 283 (Fla. 1st DCA 2004), Florida's First District Court of Appeal affirmed the issuance of a temporary injunction in favor of an insurance company and against a former employee, enjoining him from soliciting the sales of insurance to its customers on behalf of his new employer. The appellate court explained that even if the former client had initiated the contact with the former employee, a solicitation could nonetheless occur where the former employee made a comparison for the clients between the benefits and premiums afforded by the two insurance companies. The appellate court explained that: "[T]he term 'solicitation' is defined in Black's Law Dictionary ... as 'the act or an instance of requesting or seeking to obtain something; a request or petition.' It reasonably appears from ... [this] definition that a person may, in appropriate circumstances, solicit another's business regardless of who initiates the meeting." In reaching its decision, the appellate court referred to a federal court decision, FCE Benefit Adm'rs Inc. v. George Washington Univ., 209 F.Supp.2d 232 (D.D.C. 2002), holding that an insurance agent breached an agreement not to "call upon, solicit, or take away" her former employer's customers because "[e]ven though she was initially contacted by Melwood [a former customer], ... she assumed an active role in Melwood's decision-making process."
As another example, in Environmental Services, Inc. v. Carter, 9 So.3d 1261 (Fla. 5th DCA 2009), the former employees, against whom the injuction was entered, argued that their former employer's customers elected to end their relationship with the former employer of their own accord and, therefore, the former employer lacked any legitimate business interest worthy of protection by way of enforcement of the non-compete clause. Florida's Fifth District Court of Appeal in the Environmental Services rejected this argument and affirmed the injunction, explaining in pertinent part: "[T]he First District discussed the situation where former clients initiate contacts with employees at their new place of business, explaining that 'solicitation' can include a transaction in which the employee was proactive, regardless of whether the customer or employee initiated the transaction. Here, Carter confirmed that he discussed his new business venture, NRC, with ESI clients. There was also ample evidence that Carter actively enticed existing customers away from ESI."
The Mavrick Law Firm successfully represented a former employee and his business who were sued in a non-compete case based on alleged violation of a non-solicitation clause. In that case, the former customer was dissatisfied with the former employer and therefore contacted the former employee's new business to hire its services. The former customer made the first contact with the former employee. The former employee immediately revealed that he was no longer employed by the former employer. Furthermore, the former employee did not make any efforts to sell anything to the customer. Successful defense against a temporary injunction requires careful examination and explanation of the case facts to prove an injunction would be unjustified and inappropriate."Confidential Information" Used as the Basis for a Broad Injunction That Prevents an Employee From Working for a Competitor
Florida courts generally will not enjoin employees from working for competitors merely because the employees had access to some confidential information during their prior employment. When an injunction can be reasonably tailored to bar a former employee from disclosing confidential information in subsequent employment with a competitor, Florida courts will not prevent the employee from working for the competitor because such extreme protection would be unreasonable. Florida’s non-compete statute limits injunctive relief to a “reasonableness” standard. Florida Statutes § 542.335(1)(h), requires courts to construe restrictive covenants in favor of providing “reasonable” protection to all legitimate business interests. An overly broad injunction clearly would not be “reasonable” protection. In this vein, Florida’s Fifth District Court of Appeal in Austin v. Mid State Fire Equipment of Central Florida, Inc., 727 So.2d 1097 (Fla. 5th DCA 1999), reversed a trial court injunction prohibiting a fire service technician from working for a competitor. The trial court had issued the injunction based on the premise that the employee promised in his contract not to disclose pricing information to any third party or solicit his former employer’s customers. Austin reversed the trial court’s broad injunction against working for a competitor because the injunction was unreasonably broad. The appellate court explained that the injunction should have simply prohibited the former employee from disclosing to the new employer his former employer’s pricing information or soliciting customers of the former employer. Austin explained in pertinent part:
“Here, there is no evidence to support the conclusion that Mid State will be irreparably harmed merely by Austin working for a new fire equipment company as a service technician so long as he doe not divulge price information or approach Mid State’s customers. Austin does not set up service runs or set prices; he merely executes the service runs as instructed by his employer, just as he did at Mid State. This is not a case where Austin received training or other specialized knowledge from Mid State; he has been in the industry for sixteen years and worked for other companies, including Orlando Fire, before going to work for Mid State. The injunction should have been limited to the customer and pricing portions of the covenant because beyond that it serves only to prohibit competition and becomes unreasonably protection for Mid State. See generally John A. Grant, Jr. & Thomas T. Steele, Restrictive Covenants: Florida Returns to the Original “Unfair Competition” Approach for the 21st Century, Fla.B.J. Nov. 1996) at 53, 55. (discussing 1996 revision of statute and noting that in enacting the new scheme, ‘the legislature made certain that it is a balanced statute that does not unnecessarily impede competition, the ability of competitors to hire experienced workers, or the efforts of employees to secure better-paying positions.’).”
However, under certain circumstances Florida courts have used a former employee's prior access to "confidential information" as the basis for a broad restriction preventing the former employee from working for a competitor. Florida courts typically examine the former employee’s position to use confidential information in his or her new employment. Under this legal standard, courts have enforced non-competition contractual restrictions against former employees whose positions in new employment would allow the employees to engage in unfair competition by using the former employers' confidential information. For example, in Autonation v. O’Brien, 347 F.Supp.2d 1299 (S.D. Fla. 2004), where a federal Judge decided that an employee’s access to confidential information, including the former employer’s strategic plan, market analyses, forecasts, sales trends, warranted a restriction against work for a competitor. The federal court reasoned that the employee was in a position at his new place of employment to use that information to unfairly compete against his new employer. Similarly, in a Florida state court case arising out of Miami-Dade County, the Third District Court of Appeal in Open Magnetic Imaging, Inc. v. Nieves-Garcia, 826 So.2d 415 (Fla. 3d DCA 2002), held that a physician relations representative’s knowledge of a confidential database of physician information was a legitimate business interest that justified issuance of an injunction against the former employee working for a competitor. The appellate court explained in pertinent part:
“OMI’s marketing representatives, including Nieves-Garcia, were trained to market OMI’s services to area doctors, primarily orthopedists and neurologists. As part of their job, marketing representatives were expected to compile a database on these physicians which contained the nature and idiosyncrasies of their practices, as well as information as to their referral patterns and preferences and which insurance they accepted. There was evidence that OMI had created this database system as part of its confidential strategic marketing plan … [W]e find this to be a legitimate business interest under Section 542.335.”Litigation Over the Meaning of “Extraordinary or Specialized Training”
Businesses often try to enforce non-competes against former employees by relying on exaggerated claims that they provided “extraordinary or specialized training” to satisfy the statutory requirement of a legitimate business. However, employer training is common for most jobs. Indeed, many jobs require continuing education. The legal issue for courts is whether the training qualifies as “extraordinary” or “specialized.”
Some litigants have tried to mislead courts based on cases interpreting the predecessor to the current non-compete statute regarding what level of training is needed to support a non-compete agreement. For example, some litigants have tried to rely on a 1996 Florida appellate court decision in Dyer v. Pioneer Concepts, Inc., 667 So.2d 961 (Fla. 2d DCA 1996), which interpreted the predecessor non-compete statute (F.S. 542.33) and not the current non-compete statute (F.S. 542.335(3)) that governs non-compete contracts entered after July 1, 1996. Although the former non-compete statute (F.S. 542.33) did not reference training, case law held that only “extraordinary” training would justify a non-compete. The current and applicable non-compete statute added the word “specialized” training as a ground to support a non-compete; this is distinct from and supplemental to “extraordinary” training. F.S. 542.335(1)(b)(5) (“extraordinary or specialized training”).
Two Florida appellate courts have interpreted current non-compete statute and its use of the term “specialized training.” These courts have held that the “specialized training” can exist when the employer made a substantial investment in training the employee. Balasco v. Gulf Auto Holding, Inc., 707 So.2d 858 (Fla. 2d DCA 1998), held that the non-compete “was necessary to protect the substantial investment Courtesy makes in specialized training for its sales staff” based on testimony from the employer that (1) “when productive [sales] associates leave they are replaced with ‘raw recruits’ who may take up to six months to develop’” and (2) the non-compete agreement “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.” Similarly, Aero Kool Corporation v. Oosthuizen, 736 So.3d 25 (Fla. 3d DCA 1999), held that the employer had “a legitimate business interest in the extensive, specialized training in aircraft component repair that it provided” to its employee:
"Prior to this employment, Oosthuizen had worked in a restaurant and had no experience or training in aviation repair. Aero Kool providedOosthuizen with over 195 hours of specialized training, enabling him to become skilled in repairing and overhauling aircraft components, particularly heat exchangers. He received a Temporary Airman Certificate from the Federal Aviation Administration (FAA), authorizing him to exercise the privileges of a Repairman “for manager of Heat Exchanger and accessories [while] employed by Aero Kool.”An Employer's Breach May Release the Covenant Not to Compete
When an employer seeks a temporary injunction to enforce a noncompete provision of an employment agreement, it is asking the court to force its former employee stop engaging in the alleged harmful conduct for a specified period. The injunction will be granted if it is determined that the former employee breached the valid non-compete agreement. However, the court can deny that injunction if the employer committed the first breach of the employment agreement. This legal principle is called “material breach” and means that a party who failed to perform its own contractual obligations is not entitled to enjoin a breach of the same contract by another. Seaboard Oil Co. v. Donovan, 128 So. 821 (Fla. 1930) ("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"). Peter Mavrick has successfully represented clients in Fort Lauderdale, Miami, and Palm Beach based on prior material breach by a former employer.
Florida Statute § 542.335(1)(g)(3) provides that, “[i]n determining the enforceability of a restrictive covenant, a court…[s]hall consider all other pertinent legal and equitable defenses.” In the case of Benemerito & Flores, M.D.’s, P.A. v. Roche, 751 So. 2d 91 (Fla. 4th DCA 1999), a medical professional association sought a temporary and permanent injunction enjoining Dr. Roche, its former employee, from practicing in the St. Lucie areas as well as liquidated damages for her alleged breach of a noncompete covenant.
At the hearing on the employer’s petition for temporary injunction, Dr. Roche asserted that she was relieved of her obligations under the agreement with the association because the association breached the employment agreement first by failing to pay her the contractually agreed upon bonuses. Her evidence showed that her employer failed to fully compensate her pursuant to the bonus structure in her employment agreement, which was to be calculated from all of the dialysis services she performed for the association. The employer maintained that her bonus would be calculated only on her services to patients that she personally admitted into the hospital. Dr. Roche testified that she would not have agreed to the contract had she known that was the condition to her earning the bonus. Since it is the party seeking a temporary injunction that has the burden to prove that they have a clear right to the relief requested, the trial court denied the employer’s motion for failing to meet that burden. The employer made a material breach of the employment agreement when it failed to correctly calculate Dr. Roche’s bonus, so the employer was not entitled to a temporary injunction.
The association appealed the ruling, but the appellate court affirmed the trial court’s decision. The appellate court held that because the employer materially breached the employment agreement first, Dr. Roche was relieved from the obligation of non-compete contract. The employer had refused to credit Dr. Roche for all dialysis services that she performed, and therefore the employer committed the first breach of the employment agreement. Therefore no injunction would be entered.
Case law in Florida's First and Third District Courts of Appeal is in accord with the legal principle addressed in the Roche appellate decision. Troup v. Heacock, 367 So.2d 691 (Fla. 1st DCA 1979) (employer's unilateral reduction of the employee's salary released the employee from his contractual obligations to the employer); Bradley v. Health Coalition, Inc., 687 So.2d 329 (Fla. 3d DCA 1997) ("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 wrongully 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").
A federal court decision in the United States District Court for the Southern District of Florida, Southern Wine & Spirits of America, Inc. v. Simkins, 2011 WL 124631 (S.D. Fla. Jan. 14, 2011), extended this legal principle of material breach of an employment contract by interpreting it as applying regardless of the amount underpaid. The federal court explained that "material breach of an employment contract does not rest upon the value of the amount underpaid; it rests squarely on whether the full amount due was withheld and whether it was withheld wrongfully."
It is important to note that a former employer’s failure to make payments under an employment agreement is not always a complete defense to an action to enforce a noncompete provision. To reach this conclusion, the court must determine that the parties’ obligations under the agreements were “dependent” covenants. Breach of a dependent covenant renders the entire contract unenforceable. By contrast, an independent covenant does not have such an impact. Whether the payment obligations under the employment agreements were dependent or independent covenants is an issue of law that turns on the proper interpretation of the contract. Courts will analyze the plain wording of a contract and consider the issue in the context of the entire agreement in order to achieve a reasonable construction to accomplish the intent and purpose of the parties. For example, in Richland Towers, Inc. v. Denton, 139 So. 3d 318, 321 (Fla. 2d DCA 2014), the contract specified that each restrictive covenant on the part of the employee in that agreement shall be construed as a covenant independent of any other covenant or provision of the agreement or any other agreement that the corporation may have. The appellate court held that the plain wording of the contract made the employer’s breach an independent breach. It therefore was not a defense to enforcement of the agreement.