Restrictive Covenants / Non-Compete Agreements
Noncompete and restrictive covenants are agreements where an employee agrees to not compete with any employer’s business during employment or for a specific time and specific location after employment. These agreements prevent an employee from gaining knowledge about your business and then competing against you and disrupt your business. Noncompete and restrictive covenant agreements may also be used with independent contractors.
Non Compete Agreements
There are four forms of Noncompete and restrictive covenants:
- Non-compete Agreements that prohibit competing against your business;
- Non-solicitation Agreements which prohibit one from contacting and marketing to your clients and customers;
- Non-disclosure Agreements which prohibit one from disclosing and using confidential information gained through employment; and,
- Non-piracy Agreements which prohibit one from soliciting to former employees and vendors.
In any dispute that arises in connection with a non-compete agreement or clause, the most important issue is to determine whether the non-compete provision is enforceable. Florida Statute 542.335 provides that restrictive covenants are enforceable if:
- The agreement is in writing and signed by the employee or contractor.
- The employer must prove that there is a legitimate business interest that must be protected. This includes, but is not limited to, trade secrets, confidential information, special training, and/or customer good will.
- The restriction must be for a reasonable time period and must be geographically reasonable.
- The restriction must be related to the employer’s legitimate business interest.
Enforceable Restrictive Agreements
Assuming that the restrictive agreement complies with Florida law, its enforceability also depends upon an employer’s ability and willingness to enforce the agreement. While courts generally do not favor non-compete agreements because such agreements may be overly restrictive thereby weakening commerce by burdening healthy and legal competition, courts do enforce them when the following criteria is met:
- The covenant not to compete was backed by compensation when signed.
- The agreement protects a legitimate business interest of the employer.
- The agreement has a reasonable scope to protect the employer, without being excessively burdensome for the employee’s right to earn a living.
In general, a contract must be backed by compensation to be enforceable. The promising party must receive something of value in exchange for the promise. When a non-compete, agreement is signed before the employee begins working, the job itself provides the necessary compensation.
Protection of a Legitimate Commercial Interest
In Florida, legitimate business interests that may be protected by non-compete agreements include very specific or confidential relationships or information. For example, relationships cultivated by the company with clients, sources of supplies, and proprietary production and business procedures are protected.
The goodwill in customer relationships that an employee maintained and developed during the scope of employment is an asset that belongs to the employer. Therefore, an employer may use a non-compete agreement to prevent a former employee from using such customer relationships to compete with the former employer. Non-compete covenants are frequently applied to prevent an employee from asking clients of a current employer to purchase products or services from a new employer who directly competes with that employer.
Non-compete Agreements are often enforced by the court when employers share confidential information with employees within the scope of their employment. The employer must generally demonstrate that the confidential information was kept relatively secret from the public and competitors, and that the employee gained a competitive unfair advantage by being privy to the confidential in Such protected confidential information must be distinguished from the employee’s general skills, knowledge, and experience acquired on the job formation. The employer must demonstrate that the employees’ disclosure or use of the confidential information would be harmful to the organization.
Our attorneys at Oppenheim Law are able to guide employers and employees seeking to avoid or resolve legal issues related to non-compete restrictions.
Reasonableness of the Restriction
In deciding whether to enforce the agreement, the courts will consider whether, depending on the specific circumstances, the agreement is reasonably necessary to protect the employer’s legitimate business interests, or if the agreement is too broad and excessively burdensome for the employee. The courts that make this determination will evaluate both the duration and the geographical scope of the restriction.
Reasonableness on the duration of a restriction depends on the particular facts. If the agreement is designed to protect confidential information, its duration should not extend beyond the time when the information is expected to become obsolete. If the agreement is designed to protect customer relationships, it should not last more than the time reasonably necessary to erase the association between the former employee and the employer in the customer’s mind. Two to three years is usually the maximum amount of time deemed reasonable.
Courts analyze whether the restricted geographic area is reasonable in light of the protected interest. Some guidelines include reviewing whether restricting geographic areas where employees did not perform work for the employers was too broad. In the case of sales representatives, the territorial scope of the restriction may be defined by the customers with whom the employee had contact, rather than by geography.
In circumstances where a business conducts intrastate business, Florida law regarding non compete and restrictive covenant agreements may not be enforced. Other state courts may find Florida to be very pro-employer, and as such, there may be choice of law or venue provisions to consider.
The Risk of Drafting Overbroad Agreements
If a court determines that a restrictive covenant not to compete is too broad, the Court can reduce the agreement’s duration or scope and apply it as modified. However, if the restrictive covenant or non compete is so extensive that it clearly intended to prevent legal competition rather than protect a legitimate business interest, the court may refuse to enforce the agreement.
If you are an employer requiring a non-compete agreement to protect your business’ assets, or an employee who wishes to have the restrictive covenant reviewed prior to signing, our team at Oppenheim law is here for you.
Non-compete covenants are frequently used in the context of selling and purchasing of businesses. The general principle is that such agreements are only enforceable to the extent that they are reasonably necessary to protect either the Seller’s or Buyer’s legitimate business interests. In those cases, the courts enforce non-compete agreement more liberally and their application is rarely rejected. Our team of lawyers regularly assist clients involved in the purchase and sale of businesses by preparing the necessary agreements to expedite the transaction and protect the interest of all the parties involved.
If you believe that you or your business needs to use or enforce a non-compete contact us and our team of attorneys will assist you in creating and enforcing the most prudent legal strategy for your specific needs.
Oppenheim Law | Non-Compete Agreements Attorneys
2500 Weston Rd #209
Fort Lauderdale, FL 33331