To compete or not to compete, that is the question,
Whether ’tis nobler in the mind to suffer
The slings and arrows of unrestricted competition,
Or to take arms against such competitor
And by opposing end them with restrictive covenants.
As legal counsel to multinational corporations, I am oftentimes asked by my clients about employment law matters in the United States, particularly, noncompete clauses (also known as restrictive covenants) in Employment Agreements.
In the State of Florida, there are two (2) general statutes that govern noncompete clauses:
1. For employment agreements effective before July 1, 1996: Florida Statutes §542.33; and
2. For employment agreements effective on or after July 1, 1996: Florida Statutes §542.335
In addition to the aforementioned statutes, some industries are regulated by specific noncompete regulations. For example attorneys must abide by the Florida Rules of Professional Conduct Rule 4-5 when drafting noncompete clauses in employment contracts within the legal profession.
Under Florida law, an employer must show that the non-compete is reasonably necessary to protect a legitimate business interest.[1] Furthermore valid noncompete clauses (1) must be in writing; (2) signed by the employee; and (3) the employer must plead and prove the existence of one or more legitimate business interests justifies the restrictive covenant.
What is considered a legitimate business interest?
· Trade secrets[2]
· Confidential information: Valuable confidential business or professional information that otherwise does not qualify as trade secrets.[3]
· Substantial relationships with specific prospective or existing customers, patients, or clients[4] (except relationships with former clients[5])
· Professional goodwill[6]: Customer, patient, or client goodwill associated with:
1. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;
2. A specific geographic location; or
3. A specific marketing or trade area.
· Extraordinary or specialized training[7]
· Referral sources[8]
Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.
Non-compete clauses are generally enforceable in Florida as long as they are: “reasonable in time, geographic area and scope.”[9] For example a 50-year time limitation for a specific geographic area, in a restrictive covenant not to compete, is considered an illegal restraint on trade; even though it is reasonable in scope, it is not reasonable in time and cannot be enforced[10].
What is considered to be “reasonable in time”?
· Former employees, agents, or independent contractors:[11]
1. Reasonable = six (6) months or less
2. Unreasonable = longer than two (2) years
· Former distributor, dealer, franchisee, or licensee[12]:
1. Reasonable = one (1) year or less
2. Unreasonable = longer than three (3) years
· Seller of an interest in a business or professional practice[13]:
1. Reasonable = three (3) years or less
2. Unreasonable = longer than seven (7) years
· Trade Secret related noncompetes:
1. Reasonable = five (5) years or less
2. Unreasonable = longer than ten (10) years
What is considered “reasonable in…geographic area”?
· In general, where the employer does business
1. Ex. the geographic area where the former employee provided services for the former employer
· However there are exceptions, such as if the employer is in a highly specialized area of business.
In sum Florida generally enforces noncompete clauses that meet the aforementioned qualifications, however there are several other factors to consider in determining the enforceability and legality of a restrictive covenant. Other factors to be considered carefully are: costs of enforcement and legal proceedings vs. risks to business for non-enforcement, equitable remedies, etc. Unfortunately there is not a one size fits all measurement for restrictive covenants, which is why it is highly advisable that you speak with an attorney before signing an agreement with a resitcive covenant or provide an agreement with a restrictive covenant to a prospective employee.
[1] Fla. Stat. §§ 542.335(1)
[2] Fla. Stat. §§ 542.335(1)(b)(1) and 688.002(4)
[3] Fla. Stat. §§ 542.335(1)(b)(2)
[4] Fla. Stat. §§ 542.335(1)(b)(3)
[5] Evans v. Generic Solution Engineering, 178 So.3d 114,115 (Fla. Dist. Ct. App. 2015)
[6] Fla. Stat. §§ 542.335(1)(b)(4)
[7] Fla. Stat. §§ 542.335(1)(b)(5)
[8] Infinity Home Care v. Amedisys Holding, 180 So.3d 1060. 1067 (Fla. Dist. Ct. App. 2015)
[9] Fla. Stat. §§ 542.18 and 542.335 (1)
[10] Miller v. Preefer, 1 So.3d 1278 (Fla. Dist Ct. App. 2009)
[11] Fla. Stat. §542.335(1)(d)(1)
[12] Fla. Stat. §542.335(1)(d)(2)
[13] Fla. Stat. §542.335(1)(d)(3)
