Posted on August 10, 2009 by Richard Tuschman

Eleventh Circuit Weighs in on Florida Non-Compete Law

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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Posted on December 10, 2008 by Richard Tuschman

Fourth DCA Reverses Ex Parte Injunction in Non-Compete Case

A trial court should not have entered a temporary injunction enforcing a non-compete agreement against a former employee on an ex parte basis, i.e., without notice to the employee, according to the Fourth District Court of Appeals in a recent decision, Bookall v. Sunbelt Rentals, Case No. 08-26291 (Fla. 4th DCA, December 3, 2008). 

The employer, a company that rents construction equipment, employed the former employee until February 7, 2008, under a written agreement containing a non-compete and non-solicitation provision. Shortly after the employee resigned, he began to work at a competing company. Upon discovering this, the employer sent the former employee a letter advising him of the breach of the agreement. The former employee’s counsel responded that the employee understood and would comply with his obligations under the agreement.

Upon learning that the former employee continued to work for the competitor, the employer filed a verified complaint with supporting affidavits and an ex parte emergency motion for temporary injunction. The motion sought a temporary injunction against the former employee and the competitor based on the noncompete and non-solicitation provisions of the employment agreement.  The duty judge assigned to the case entered the temporary injunction. 

In its opinion, the Fourth DCA noted that under the Florida Rules of Civil Procedure, a temporary injunction "may be granted without written or oral notice to the adverse party only if: (A) it appears from the specific facts shown by affidavit or verified pleading that immediate and irreparable injury, loss, or damage will result to the movant before the adverse party can be heard in opposition; and (B) the movant's attorney certifies in writing any efforts that have been made to give notice and the reasons why notice should not be required."  Furthermore, "[e]very temporary injunction granted without notice . . . shall define the injury, state findings by the court why the injury may be irreparable, and give the reasons why the order was granted without notice if notice was not given." See Fla. R. Civ. P. 1.610(a). 

According to the Fourth DCA, the injunction suffered from a "fatal defect": it failed to give the reasons why the order was granted without notice.  The court noted that "[t]his deficiency could have been cured if the employer articulated in its complaint or motion reasons why notice should be dispensed with....Unfortunately for the employer, neither the complaint nor the motion cured the deficiency in this case."

One lesson from the Bookall decision is clear: follow the civil procedure rules carefully.  The rules are just that - rules - not guidelines or suggestions.  The employer's and the court's failure to articulate why the order was granted without notice required a reversal of the injunction order under a plain reading of Rule 1.610(a). 

One might surmise that there was no good reason why notice was not given to the former employee.  After all, the opinion notes that the former employee was represented by counsel.  How hard is it to fax, email and/or call opposing counsel before a hearing, even on an emergency motion?

But perhaps the former employee's counsel was on vacation or otherwise unavailable to receive notice of the hearing.  In that case, an ex parte injunction may have been appropriate, and the employer's and the court's failure to state why the order was granted without notice a mere oversight.

However, even where an ex parte injunction is appropriate, employers and their counsel should be aware that it may be short-lived.  Under Fla. R. Civ. P. 1.610(d), "[a] party against whom a temporary injunction has been granted may move to dissolve or modify it at any time. If a party moves to dissolve or modify, the motion shall be heard within 5 days after the movant applies for a hearing on the motion."  Thus, if a court enters a temporary injunction on an ex parte basis, the employer's counsel should clear his calendar for the next week.  The employee is entitled to a file a motion to dissolve and obtain an expedited hearing, and he may stand a good chance of getting the injunction modified or dissolved entirely once he tells his side of the story. 

 

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Posted on July 21, 2008 by Richard Tuschman

Fourth DCA Reverses Denial of Injunction in Non-Compete Case

In a recent decision by the Fourth District Court of Appeals, USI Insurance Services of Florida, Inc., v. Pettineo, Case No. 4D08-303 (July 16, 2008), the appellate court reversed the trial court's denial of a temporary injunction in a non-compete case filed by the buyer of an insurance agency.  The decision is noteworthy for a few reasons:

First, it states explicitly, in a way that few appellate court decisions do, that section 542.335, which replaced section 542.33, "places a substantially smaller burden on the party establishing the need for injunctive relief and shifts some of the burden on the defending party."  The court then neatly summarizes the burden-shifting scheme under the "new" statute (which is now more than a decade old but is still frequently misconstrued by trial courts). 

Second, the decision notes the distinction between a non-compete provision in an asset purchase agreement and one that is incidental to an employment agreement.  In the former case, the buyer has a particularly strong claim to enforcement of the non-compete agreement, "to enter the field of competition unhampered by the adverse influence of the seller."  The court even goes as far as quoting a 1931 Florida Supreme Court decision, Massari v. Salciccia, 136 So 522, 524 (Fla. 1931), for the proposition that "[p]arties to the sale of a business are free to forge agreements 'which have for their object the removal of a rival and competitor in a business.'”

Third, the court notes that an injunction can be entered against those who are not parties to a non-compete agreement as long as they receive notice and an opportunity to be heard.  The court cites its own decision in Leighton v. First Universal Lending, LLC, 925 So.2d 462, 6465 (Fla. 4th DCA 2006),  which notes that "an injunction may bind non-parties identified with parties in interest, in privity with them, represented by them, or subject to their control."

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