Florida's Noncompete Statute: "Reasonable" or "Truly Obnoxious"?

Author:Jackson, Hank
Position:Cover story
 
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Florida's noncompete statute, F.S. [section]542.335, governs the enforceability of noncompete agreements. The statute uses the word "reasonable," or a derivation of it, 17 times. Reasonableness is the primary standard resorted to throughout the statute to determine whether a noncompete agreement is enforceable. This includes a core requirement in the statute that noncompete agreements must be "reasonably necessary to protect the legitimate business interest" of the party trying to enforce the agreement. (1)

Recently, the Florida Supreme Court in White v. Mederi Caretenders Visiting Servs. of Southeast Florida LLC, 226 So. 3d 774, 2017 WL 405393 (Fla. Sept. 14, 2017), addressed the responsibility of trial courts to evaluate the enforceability of noncompete agreements based on the specific facts of each case. (2) The court in White accepted jurisdiction because of a direct conflict between Florida's Fourth and Fifth district courts of appeal on whether a company's referral sources may be a protectable legitimate business interest sufficient to support the validity of a noncompete agreement. (3) In addition to ruling on this precise issue and holding that referral sources can be such a legitimate business interest depending on the specific facts of the case, (4) the court took the opportunity to reference the reasonably necessary requirements within the noncompete statute. (5)

That the Florida Supreme Court recently referenced the reasonableness requirements of the noncompete statute is significant, as it comes after other courts have criticized Florida's noncompete statute. For instance in 2015, the New York Court of Appeals found that Florida's noncompete statute was unenforceable because it was against New York's public policy. (6) As will be discussed later, the New York court explained that this public policy exception was reserved for laws that are "truly obnoxious." (7) Also, as will be discussed, federal courts and other state courts outside of Florida have either narrowly interpreted the statute to justify not enforcing noncompete agreements or, like the New York Court of Appeals, directly refused to follow the statute on public policy grounds.

Despite these criticisms, the Florida Supreme Court in White expressed its commitment to be guided by the legislative intent and the plain language of the statute. (8) However, in doing so, the court in White also referred to the statute's reasonableness requirements and encouraged the active involvement of trial courts in assessing the enforceability of noncompete agreements by emphasizing that the trial courts were the best able to apply the statute to specific fact situations (9) and that the statute "grants trial courts fairly wide discretion to fashion the appropriate context-dependent remedy." (10)

History of Noncompetes in Florida.

In general, noncompete agreements (also referred to as restrictive covenants) are contractual agreements wherein an employee promises not to compete with his or her employer's business during employment and for a specified time after the termination of such employment. Noncompete agreements can include an employee's agreement not to work for the employer's competitor(s) and an employee's agreement not to solicit the employer's customers for a specific period of time. (11) In addition to the employee/employer context, noncompete agreements are often utilized between a buyer and a seller in the purchase of an ongoing business. The buyer will request a noncompete agreement from the seller so that the seller does not immediately after the sale of the business start a competing business or poach the customers of the business the seller just sold.

In general at common law, noncompete agreements were often found to be void as an improper restraint of trade. This was also the case under Florida common law, (12) until the Florida Legislature statutorily set the guidelines for determining whether noncompete agreements were too restrictive. Florida's statutory noncompete provisions have been revised and modified several times by the legislature; in 1996 there was a total rewrite of the noncompete statute. (13) Since that rewrite, over 20 years ago, no modifications have been made. (14)

* Florida's Current Noncompete Statute--Florida's current noncompete statute, [section]542.335, governs all noncompete agreements entered into on or after July 1, 1996. (15) Its fundamental precepts are fairly straightforward. The statute starts with the requirement that noncompete agreements are not prohibited "so long as such contracts are reasonable in time, area, and line of business." (16) The statute then provides that a person seeking to enforce a noncompete agreement "must plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant." (17) Next, the statute sets forth that legitimate business interests include, but are not limited to, five items: trade secrets; valuable confidential information; substantial relationships with customers, patients and clients; goodwill; and extraordinary or specialized training. (18) Importantly, the statute also provides that the contractual restrictions must be connected to the protection of legitimate business interests; a person seeking enforcement must prove "the contractually specified restraint is reasonably necessary to protect the legitimate interest...." (19)

* Two Major Points of Criticism -While the provisions discussed above are standard noncompete principles and provisions that have generally not been the subject of criticism and have been enforced by other courts, some of the detailed provisions of Florida's noncompete statute that follow these standard provisions have been deemed unbalanced and excessively pro-employer. Probably the most criticized is the provision that prevents consideration of the harm to the employee: the statute states that "[i]n determining the enforceability of a restrictive covenant, a court shall not consider any individualized economic or hardship that might be caused to the person against whom enforcement is sought." (20) A second provision often criticized is the statute's prohibition against any rule of contract construction that...

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