Non-Compete Agreements
Are They Really Enforceable?
Amidst the continued difficulties of the economic environment, employment law attorneys throughout the country are receiving numerous inquires from both employees and employers pertaining to “non-compete agreements.” While the underlying issue is always the same — whether such agreements are legally enforceable — the former seek ways to invalidate their non-compete agreement because it is an unlawful restraint on trade while the latter attempt to protect their legitimate business interests through judicial enforcement of the non-compete agreement. Although non-compete agreements often become an issue in stockholder agreements and in connection with the sale or dissolution of businesses, the scope of this article focuses on non-compete agreements in the context of an existing or former employment relationship.
A non-compete agreement (also known as a restrictive covenant) is a contractual agreement between an employee and employer in which the employee promises to refrain from engaging in a similar profession or trade in competition with the employer. Although the general rule prohibits contracts that restrain or prohibit trade, Florida Statute 542.335(1) provides an exception to the rule: “Enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited.”
To enforce these contracts, as a threshold matter, the employer must first establish that enforcement of the non-compete agreement is necessary to protect a “legitimate business interest,” such as trade secrets, confidential information, or “substantial relationships with specific prospective or existing customers, patients, or clients.” If an employer successfully establishes that the company is attempting to protect a “substantial business interest,” it may then be able to obtain a court order — even after the conclusion of the employment relationship — prohibiting the employee’s right to compete, provided that the non-compete agreement sought to be enforced is reasonable in time, area, and line of business.
There is no definitive rule as to what constitutes a reasonable amount of time with respect to non-compete agreements. Each case is decided based upon its own specific facts and circumstances, subject to the existence of binding or persuasive case law in a respective jurisdiction. However, the statute does provide some guidance.
In the case of a non-compete agreement that does not involve the protection of trade secrets, the law presumes any duration of time that is six months or less to be reasonable and any restraint in excess of two years to be unreasonable. Similarly, there is no definitive rule as to what constitutes a reasonable geographic restriction, but courts generally will deem non-compete agreements that restrict an employee from engaging in competitive services outside of the geographic area in which the employer conducts business to be an unlawful restraint on trade.
The decision by an employee to engage in conduct that arguably violates his or her non-compete agreement is a risky one. The employer may sue the employee, in which case the employee will have to pay to hire an attorney. Additionally, if the employer is successful in court, the employee will be ordered to pay the employer’s damages and may be ordered to pay the employer’s costs and attorney’s fees. Conversely, an employer who unsuccessfully brings a lawsuit against a former employee to enforce a non-compete agreement may be required to pay the employee’s costs and attorney’s fees. Furthermore, the company may expose itself to the possibility of being sued by the employee for tortious interference.
The difficult economic conditions will likely continue to motivate employers to protect their business interests and cause employees to search for ways to invalidate the restrictions contained in non-compete agreements. Given that each case is decided based on its own unique set of facts and circumstances along with the lack of definitive guidelines as to what exactly is considered reasonable in time and geographic area, it is best to consult with an experienced employment attorney when faced with a question about a non-compete agreement. An ounce of prevention is worth a pound of cure.
