How to Draft an Enforceable Non-Compete Agreement Under Florida Law
A Brief Overview of Non-Compete Agreements
In a Non-Compete Agreement (a “Non-Compete”), someone, usually an employee agrees to not compete against another, usually an employer, for a certain period. Love ’em or hate ’em, Non-Compete Agreements (“Non-Competes”) have been a part of our history since Medieval times. These agreements are a type of Restrictive Covenant, which is type of contract where someone agrees to not do something.
Since Non-Competes are contracts, they are governed by state law. Since Non-Competes are controversial, the attitudes of Lawmakers towards Non-Competes differ from state to state. For example, in California, Non-Competes are banned by law.California employers are prohibited from requiring employees to sign Non-Competes. However, many states are not as opposed. For example, in Arkansas, judges are required by law to “reform” unenforceable Non-Competes to make them enforceable.
Many discussions of Non-Compete descend into an academic dissertation on whether courts should “blue pencil” (strike out unenforceable portions of a Non-Compete while keeping the enforceable parts intact) or “red pencil” (eliminate an entire Non-Compete due to one unenforceable provision) and the merits and consequences of theses approaches.
This article will spare you any further discussion of penciling and instead focus on Section 542.335, which is Florida’s Non-Compete Statute, and how to make sure your Non-Compete is enforceable under it.
Florida's Approach to Non-Compete Law
Florida has a pro-Non-Compete attitude. In Florida, a Non-Compete is enforceable through Temporary and Permanent Injunctions. An Injunction is a Court Order to stop doing something. The difference between a Temporary Injunction and a Permanent Injunction is the timing. A Temporary Injunction is an Injunction that is effective while a lawsuit is still happening. A Permanent Injunction is an Injunction that is effective after a lawsuit ends. To get an Injunction, you must show you will suffer “Irreparable Injury” if it is not granted. Section 542.335 presumes an Irreparable Injury in your favor if your enforceable Restrictive Covenant is violated. Seeing how the ultimate goal of a lawsuit enforcing a Non-Compete is to get an Injunction, the importance of having an enforceable Non-Compete cannot be understated!
The Minimum Requirements of an Enforceable Non-Compete Under Florida Law
Under Florida law, there are minimum requirements a Non-Compete must meet to be enforceable. If those minimum requirements are met, Courts are required by Section 542.335 to reform an unenforceable Non-Compete Agreement so that it can become enforceable.
The minimum requirements for a Non-Compete to be enforceable in Florida are that it be in writing, it be signed by the person who is expected to not compete, and that the Non-Compete be justified by a “Legitimate Business Interest.”
Section 542.335 lists five examples of Legitimate Business Interests, they are:
2. Other Valuable Confidential Business or Professional Information that does not qualify as a Trade Secret, which as the name suggests, is valuable confidential information that does not meet the legal definition of a Trade Secret;
3. Substantial Relationships with Specific Prospective or Existing Customers, which Courts have defined as providing the funding for employees to establish personal relationships for business purposes;
4. Customer, Client, or Patient Goodwill, which Courts have defined as the investment needed to develop a customer base and as the existence of longstanding relationships with customers, clients, or patients; and
5. Extraordinary training, which can generally be defined as training that goes beyond what is typical in the industry in which the Non-Compete is effective.
How to Prove Your Non-Compete is Reasonably Necessary to the Protection of Your Legitimate Business Interest
To enforce a Non-Compete, you will need to prove the Non-Compete is reasonably necessary to protect your Legitimate Business Interest. Proving the connection between the two is fact-intensive and will likely require physical evidence. To help prove your Non-Compete protects your Legitimate Business Interest, you should have systems in place that gather evidence showing those who signed your Non-Compete used to your Legitimate Business Interests and received the benefits of using it.
For example, if your Legitimate Business Interest is a Trade Secret or Other Valuable Confidential or Professional Information, you should use a recordkeeping software that logs who has access to this information and when it is accessed.
If Your Legitimate Business Interest is your Substantial Relationships with Specific Prospective or Existing Customers or is your Customer, Client, or Patient Goodwill, you should keep records of your marketing efforts, cover and maintain a record of your staff’s business development expenses, and maintain a database of your customers which includes the date they first contacted you, the date they became your customer, and a log their interactions with your staff.
If your Legitimate Business Interest is Extraordinary Training, you should have a clearly documented training program for your staff. Keep track of their progress as they proceed through it and provide them with a certificate when they complete it. If possible, find out how your competitors train their staff, so you have a reference for what is considered standard training in your industry and in your area.
Keeping the proper evidence will help you quickly establish that your Non-Compete is reasonably necessary to the protection of your Legitimate Business Interest should you have to sue to enforce it. Once the connection between the Non-Compete and your Legitimate Business Interest has been established before the Court, an Irreparable Injury will be presumed. This presumption will increase the odds you can obtain a Temporary Injunction or Permanent Injunction, which will force whoever signed your Non-Compete to stop breaching it while the lawsuit plays out and after it ends.
How to Avoid Attacks Claiming Your Non-Compete is Overbroad, Overlong, or Not Reasonably Related to the Protection of Your Legitimate Business Interest
The purpose of a Non-Compete is to protect the investment you made in developing your Legitimate Business Interests. Despite the name, a Non-Compete does not protect you from all competition forever. As long as the terms of your Non-Compete are not violated, anyone who has signed it is free to seek gainful employment in the areas you serve. That said, a Non-Compete should only restrict competition within reasonable geographical, line of business, and time limits. If it does not, it will be open to attack as being Overbroad, Overlong, or not reasonably related to the protection of your Legitimate Business Interest (“Overbroad.”)
Reasonable Geographical Limits
To make sure your Non-Compete is not Overbroad in terms of geography, it should restrict competition in the areas where the person that signed your Non-Compete served you. If the geographical limits of your Non-Compete are much larger than that area, you run the risk of being Overbroad. When preparing your Non-Compete, you should describe the geographical limits in terms of distance, i.e., a number of miles from a certain location, instead of a list of counties, especially if the person that signed your Non-Compete did not serve you in those counties or you do not plan for them to serve you in those counties.
Reasonable Line of Business Limits
To make sure your Non-Compete is not Overbroad in terms of its line of business limits, your Non-Compete should clearly list the industries the signers is prohibited from working in. Your Non-Compete may also list out prohibited competitors by name. The more closely related your Non-Compete’s line of business limits are to your lines of business, the more likely it is a Court will find your Non-Compete reasonably related to the protection of your Legitimate Business Interest. Accordingly, the lines of business restricted by your Non-Compete should be the ones the signer of your Non-Compete served you in.
Reasonable Time Limits
To make sure your Non-Compete is not Overbroad in terms of time, Section 542.335 has a list of timeframes that are presumed reasonable. The length of the reasonable timeframe depends on the relationship between you and the signer of your Non-Compete.
The length of a Non-Compete will be presumed reasonable if it is for:
Less than 3 years: If the Non-Compete is against the Seller of all or part of a business;
Less than 5 years: If the Non-Compete is for the protection of trade secrets.
Section 542.335 also has a list of timeframes that are presumed unreasonable. Just like the presumption of reasonableness, the length of the unreasonable timeframe depends on the relationship between you and the signer of your Non-Compete.
The length of a Non-Compete will be presumed unreasonable if it is for:
More than 7 years: If the Non-Compete is against the Seller of all or part of a business;
More than 10 years: If the Non-Compete is for the protection of trade secrets.
If your Non-Compete is found to be Overbroad, Overlong, or not reasonably related to protecting your Legitimate Business Interest, Section 542.335 requires the Court to modify the Non-Compete so that it is reasonable and enforce the reasonable modification against the signer of the Non-Compete.
How a Non-Compete can Increase the Value of You Business
A Non-Compete can be enforced by a Successor or Assignee if the Non-Compete states as much.A Successor is someone who takes your place or the place of your business from a legal standpoint. For example, if, as part of a merger, your Corporation ceases to exist, the Surviving Corporation is a Successor of your Corporation. An Assignee is someone who receives a legal right from you. For example, a credit card company that sells its overdue Accounts Receivable to a debt collector typically assigns the debt collector its contractual right to receive payment from the debtor. Having a Non-Compete that is enforceable by your Successors and Assignees can constitute an intangible asset that could increase the value of your business.
TealAcre Can Help You Prepare a Non-Compete Agreement Strategy
As you can see, there are enormous benefits to having enforceable Non-Compete Agreements in your business. However, having an enforceable Non-Compete Agreement requires more than just the the Non-Compete Agreement itself. Successfully enforcing a Non-Compete Agreement requires the gathering of evidence through systems that should be in place long before a lawsuit to enforce your Non-Compete Agreement is filed.
At TealAcre, we will find the best strategy for you and business so you can achieve your goals, by helping you protect the investment you made in yourself and your business.
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