As Florida’s workforce becomes more specialized and mobile, the economic climate becomes increasingly competitive for employers to protect their business interests. In an effort to protect those interests, employers frequently include restrictive covenants, or non-competition language, within their employment agreements to govern the conduct of employees upon termination or resignation. Florida law recognizes an employer’s rights to protect its legitimate business interests. However, those business interests are balanced against the rights of the former employee to reasonably continue to make a living in his or her trade. This article provides guidance to business owners to assess their needs for drafting noncompetition agreements and to provide counsel as to the effective enforcement of the agreements.
Section 542.335, Florida Statutes, provides the statutory framework for the validity of noncompete agreements. In general, the statute provides the types of information and interests that may be protected (“legitimate business interests”); the guidelines for reasonable restrictions; burdens of proof for enforcing and defending the agreement; and guidance on how agreements will be interpreted by the courts.
Noncompetition agreements are often enforced by employers who seek relief from the courts by moving for a temporary injunction under Rule 1.610, Florida Rules of Civil Procedure. Note that the statute expressly provides that temporary and permanent injunctions are appropriate remedies for the enforcement of noncompetition agreements. F.S. 542.335(1)(j). Additionally, violation of a noncompetition agreement creates a legal presumption of irreparable injury. Id. This legal presumption is highly favorable to the employer, as proving irreparable harm is necessary for the issuance of a temporary injunction. At this early onset of litigation, the stakes are high for both the employer and the employee. On one hand, the employer must protect its customer lists and trade secrets; while the employee runs the risk of being out of work in his or her field of expertise for an indefinite amount of time. An employer’s victory at this early stage depends heavily on a well-drafted noncompetition agreement.
As a prerequisite to enforcement, the noncompete agreement must be set forth in writing, and it must be signed by the employee. F.S. 542.335(1)(a). Enforcement of noncompetition agreements requires a two-pronged approach: the employer must first prove the existence of a legitimate business interest justifying the noncompete; and secondly, the employer must demonstrate that the restrictions used to protect its interests are reasonable. “Legitimate business interests” are defined as (1) trade secrets; (2) valuable confidential business information; (3) substantial relationships with customers; (4) customer and client goodwill; and (5) extraordinary or specialized training. F.S. 542.335(1)(b)(1)–(5). If the noncompetition agreement is not supported by a legitimate business interest, it is unlawful, void and unenforceable.
Once the employer demonstrates the existence of a legitimate business interest, it must next demonstrate that the restraints are reasonably necessary to protect those interests. F.S. 542.335(1)(c). The statute further provides guidelines as to the reasonableness of the restrictions set forth in the agreement. Specifically, a court will focus on the reasonableness of the restrictions on time, geographic scope and nature of the activities prohibited.
Reasonableness of Time
The reasonableness of the time restriction often depends on the interest to be protected. Fortunately, the statute establishes the presumptions courts must apply to protection of different types of information. See F.S. 542.335(1)(d)(1)–(3). For instance, most restrictive covenants—not based upon protection of trade secrets or sales of an ownership interest in a business entity—are presumed reasonable in time if the restraint is less than six months; but the restriction is presumed unreasonable if the restraint is more than 2 years in duration. F.S. 542.335(1)(d)(1).
Reasonable Geographic Area
The noncompetition agreement should also establish a reasonable restriction on geographic area that is designed to protect its business interest. Some factors that the employer should consider when setting the restricted geographic area are the business location and the areas that the business affects. If the employer can establish and define the location of customer information, market share, and territories in which it conducts business, the court will more likely find the geographic area to be reasonable. For most companies not protecting intellectual property or trade secrets, establishing a national or global restricted area as reasonable is very rare. Many employers may establish reasonable geographic restrictions by defining the location of its customers of a reasonable area containing the location of any office or territory where the former employee conducted business.
Reasonable Prohibition on Activities
Many well-drafted noncompetition agreements provide specific definitions as to what constitutes “competitive activity” on behalf of the employee. The scope of the activities prohibited must be reasonable. Generally, the activities prohibited may depend upon the employee’s level of specialization, training and access to information. The noncompetition agreement should contain prohibitions on solicitation of customers and disclosure of confidential information, which can include customer lists, pricing information and other trade secrets.
Guidance for the Court’s Interpretation
After the employer establishes reasonable restrictions to protect its legitimate business interests, the burden of proof shifts to the employee to establish that the restraint is overbroad, overlong, or not reasonably necessary to protect a legitimate business interest. F.S. 542.335(1)(c). In considering the employee’s defenses, a court must construe a covenant in favor of providing reasonable protection to all legitimate business interests established by the employer. F.S. 542.335(1)(h). If the court finds that the restraint is overbroad, a court may modify the restraint and grant only the relief that is reasonably necessary to protect the interest. F.S. 542.335(1)(c). This provision of the statute is also known as the “blue pencil”, meaning the court will judicially limit the time and geographic scope of the restraints rather than completely strike or nullify the restraint.
Although the restraints must be reasonably tailored to the employer’s legitimate business interests, the statute further provides some predictability as to how courts should interpret and weigh the facts and defenses asserted by employees. The court cannot consider any individualized economic or other hardship that might be caused to the employee. F.S. 542.335(1)(g)(1). The court may consider as a defense that the employer no longer continues to conduct business in the area or line of business, only if such discontinuance of business is not the result of a violation of the restriction. F.S. 542.335(1)(g)(2). The court must consider all other pertinent legal and equitable defenses. F.S. 542.335(1)(g)(3).
There are many facets to the enforcement of a noncompetition agreement. The most prudent employers, and the employers who are often successful in protecting their business interests, are those who consult with experienced counsel to discuss the nature of their business and carefully draft the most appropriate and expansive restraints that have been upheld as reasonable by Florida courts. An employer’s success in protecting its legitimate business interests starts with a valid noncompetition agreement, tailored to your specific business needs and supported by evidence to place you in a position of strength for enforcement of the agreement.