Florida Employment Law Blog : Florida Employment Lawyer & Attorney : Epstein Becker Green Law Firm : Immigration, Discrimination, Labor, FLSA : Serving Miami, Fort Lauderdale, Florida

Florida law, specifically section 542.335, Florida statutes, generally authorizes courts to enforce non-compete and other post-employment restrictive covenants, provided the agreements are in writing and signed by the employees against whom enforcement is sought, are reasonable in time, area, and line of business, and are supported by one or more legitimate business interests supporting the restrictive covenants. 

Section 542.335 is fairly detailed.  The statute defines what a reasonable time period is (it depends on the nature of the restrictive covenant), it lists several legitimate business interests, and it even addresses potential defenses.  For example, it states that the court "[s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.".

Still, section 542.335 leaves several issues unaddressed, leaving the courts to sort them out.  Several of those issues are addressed in a 48 page opinion issued recently by the Eleventh Circuit Court of Appeals in Proudfoot Consulting Co. v. Gordon (11th Cir., July 30, 2009).  The Eleventh Circuit affirmed the district court's injunction, but reversed the $1.66 million damages award to the former employer.

Here are some key points to take away from the court's decision:

• Where a non-compete covenant does not contain a geographic limitation, the court can supply a reasonable geographic scope.  And where, as here, the employee had been assigned to a territory that included all of North American and Europe, this geographic area is reasonable.
• The court expressed doubt that a broad non-compete agreement that prohibits the former employee from working for a competitor, irrespective of which clients he is serving, would be reasonably necessary to protect an employer's interest in the relationships that the former employee developed with its clients. 
• The court also expressed doubt that such a broad non-compete agreement would be reasonably necessary to protect client-specific confidential information, if restrictions that prevent the employee from contacting, or working for, those clients would be sufficient to protect that information.
• On the other hand, the court stated that where an employee has access to confidential business information crucial to the success of the employer's business, the employer has a strong interest in enforcing a covenant not to compete, irrespective of whether the employee improperly retains and uses that information in his new employment. But the court noted that it is unclear under Florida case law precisely when confidential information will justify a broad non-compete covenant.  Is it sufficient that the employee be in a position at his new employer to use the former employer's confidential information?  Or must the former employer meet the higher burden of proving that disclosure of the confidential information by the employee would be inevitable in the employee's new position?  The court declined to answer this question, finding that under the facts of this case, where the employee had actually retained some of his former employer's confidential business information, the potential disclosure of that information to his new employer justified the enforcement of the non-compete covenant.
• It is not necessary that the former employer prove that the employee intentionally breached the restrictive covenants at issue in order to receive injunctive relief.  The employee's good faith, reasonable belief that he is not in breach of a restrictive covenant is no defense.
• With respect to damages, the fact that the new employer profits from a breach of its employee's non-compete agreement with his former employer is irrelevant absent a finding that the employee directly caused his former employer to lose profits.  "Damages for breach of a non-compete are intended to make the prior employer whole, not to punish employees."  Furthermore, "disgorgement of profits earned is not a remedy for breach of contract," especially where the new employer is not even a party to the litigation.

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Employment litigation has boomed in the last 15 years. Statutes such as the ADA and the FMLA have created new rights for employees. Decades-old laws such as Title VII (which prohibits many forms of discrimination) and the Fair Labor Standards Act (which sets the minimum wage and regulates overtime pay) remain popular among plaintiffs’ lawyers and their clients. In fact, the number of Title VII charges is on the rise, and the Southern District of Florida leads the nation in FLSA lawsuits. The cost of litigation has increased as well. Employers can spend $50,000 in attorney’s fees defending even a baseless case. Naturally, you may be skittish about criticizing, much less terminating, your poorly performing employees. And you may be reluctant to ask your employees to sign agreements designed to protect your customer lists and other confidential business information.

Don’t be. In today’s ultra-competitive business environment, you cannot afford to retain poor performers. Nor can you afford to let employees take advantage of your hard work and intellectual property. Sure, employees have many legal rights. But as an employer, you too have rights. Here are just a few:

▪ You have the right to demand hard work. The law does not prohibit you from taking action against employees who are lazy or unproductive. Moreover, you can require employees to work overtime, even weekends and holidays, provided that you pay your non-exempt employees the appropriate overtime wages. (Employees who qualify for the professional, executive, administrative and outside sales exemptions are not entitled to overtime pay.) Weed out your lazy employees, and reward your hard workers with overtime pay if necessary.

▪ You have the right to demand high-quality work and appropriate workplace conduct. Sloppy work product, poor customer service, and arguments with co-workers and supervisors are not legally protected workplace behaviors. Put an end to them through a system of progressive discipline.

▪ You have the right to demand loyalty. Employees do not have a right to solicit business for their own benefit or to set up a competing business while you employ them. You can and should terminate employees who put their own interests ahead of your business.

▪ You have the right to be wrong. Suppose you have reason to believe that an employee is stealing or otherwise not acting in the company’s best interests, but you don’t have conclusive proof. Fortunately the law does not require an employer to act like a prosecutor and obtain proof beyond a reasonable doubt.  So long as you act in good faith and without discrimination, you can lawfully act on your best available information, even if it turns out to be wrong.

▪ You have the right to protect your trade secrets and confidential business information. The Florida Uniform Trade Secrets Act protects against an employee’s misappropriation of trade secrets. But courts often construe the term “trade secrets” narrowly. You should require employees who have access to customer lists, strategic plans, pricing information, financial data, and other confidential business information to sign confidentiality agreements that restrict their use of such information during their employment, and after. Florida law (section 542.335, Florida Statutes) also allows you to require employees to sign agreements not to compete with your business or to solicit your customers for a period of time after their employment ends, provided the agreements are supported by legitimate business interests and are reasonable in time, geographic scope and line of business. 

You may already know what the law prohibits you from doing as an employer. But knowing what the law permits you to do – and doing it – will improve the productivity of your workforce and give you an advantage over your competition. 

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Section 542.335, Florida Statutes, generally permits courts to enforce noncompetition agreements that are reasonable in time, area, and line of business, and that are supported by a legitimate business interest. 

In drafting such agreements, employers often attempt to prohibit their former employees from competing “directly or indirectly” with them. But what is “indirect” competition, and can an employer actually prohibit it?

A recent decision by the Third District Court of Appeals provides some guidance on these issues. In Air Structures American Technologies, Inc. v. Buitrago, Case No. 3D07-2648 (Fla. 3d DCA, June 18, 2008), Plaintiffs Air Structures American Technologies, Inc. and Dan Fraioli sued defendant German Buitrago, alleging that Buitrago had breached his noncompetition agreement with his former employer, Air Structures. During trial, the plaintiffs and Buitrago entered into a settlement stipulation which took the form of a new three-year noncompetition agreement.

Several months after expiration of the three-year term, the plaintiffs filed a motion alleging that Buitrago had breached the agreement prior to the expiration of the three-year term. All parties moved for summary judgment. The trial court granted Buitrago’s motion, and the defendants appealed.

Paragraph four of the settlement stipulation prohibited Buitrago from “soliciting or competing, directly or indirectly, with the plaintiffs for anyone on a customer list attached to the settlement stipulation.” Buitrago subsequently supplied goods to a manufacturer, Johnson Marcraft, who resold them to someone on the prohibited list, who resold them to the ultimate customer.  Johnson Marcraft submitted an affidavit stating that by company policy, the company would not disclose to a supplier, such as Buitrago, the identity of Johnson Marcraft’s customers.

In other words, Buitrago did not know, and had no reason to know, that Johnson Marcraft would resell the goods to one of the companies on the plaintiffs’ customer list. Nonetheless, he did indirectly compete with the plaintiffs in apparent violation of the settlement stipulation. The issue in the case was whether plaintiffs were entitled to enforce the stipulation’s prohibition on indirect competition under these facts.

The Third DCA said no:

We agree with the trial court that the provision on indirect sale necessarily includes a knowledge requirement, such that the defendant knew or reasonably should have known that the indirect sale would reach a person or entity on the prohibited list. We agree with the trial court in rejecting the plaintiffs’ argument that this was a "strict liability" provision such that the defendant would be liable even if the defendant did not know, and could not reasonably have known, that the resale would reach a person or entity on the prohibited list.

The take-away from this case is that employers must be careful in drafting noncompetition agreements to ensure their enforceability. A clause that purports to prohibit “indirect competition” will only be enforceable to the extent that it is reasonable. And as the Buitrago case suggests, a prohibition on indirect competition that the employee has no reason to know about is not likely to be deemed reasonable.

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