Successfully defending employees in noncompete and trade secret litigation.

• Author: Turner, N. James

Fierce economic competition and a highly mobile workforce have caused many employers to require, with unprecedented frequency, that their new hires and existing employees execute noncompete agreements. (1) Noncompete agreements and their enforcement through litigation involve very high stakes, particularly for the employee who faces a temporary, or perhaps permanent, loss of livelihood. Not only is litigation often unpredictable and time-consuming, but it also becomes emotionally and financially draining for the employee. Needless to say, employees who are presented with noncompete agreements should seek representation with an experienced employment attorney who will review the document carefully and discuss the consequences of possibly being bound by legally enforceable restrictions on future employment in their chosen field. However, most representation of employees with respect to noncompete agreements comes only after the agreement has been signed and the employee must deal with the consequences of the agreement. This article will discuss some of the issues to be confronted in defending employees in noncompete or trade secret litigation, and some strategies that might increase the chances of that defense being successful.

Statutory Framework

F.S. [section] 542.335 (2003) provides that a court will not enforce a noncompetition agreement unless it is in writing and signed by the employee. (2) The employer seeking enforcement of a noncompete agreement must establish the existence of one or more legitimate business interests justifying the noncompete provision. "Legitimate business interests" include, but are not limited to:

1) Trade secrets, as defined in [section] 688.002(4);

2) Valuable confidential business or professional information that otherwise does not qualify as trade secrets;

3) Substantial relationships with specific prospective or existing customers, patients, or clients;

4) Customer, patient, or client goodwill associated with:

1. An ongoing business or professional practice, by way of trade name, trademark, service mark, or "trade dress";

2. A specific geographic location; or

3. A specific marketing or trade area.

   5) Extraordinary or specialized training. (3)

   The employer must also establish that the language in the noncompete is reasonably necessary to protect the legitimate business interest or interests justifying the restriction. (4) The employee may challenge the noncompete agreement by establishing that it is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interests of the employer. (5) In such cases, the court may modify the restraint and grant only the relief reasonably necessary to protect such interest or interests. (6) These statutory defenses are not the only grounds for challenging a noncompete agreement. Other challenges to noncompete agreements will be discussed below.

   Enforcement of Noncompete by Employer

   * Temporary Injunctive Relief

   Enforcement of a covenant not to compete usually begins with an application to the trial court for temporary injunctive relief, which is governed by Fla. R. Civ. P. 1.610. For the employee, defeating the employer's application for a temporary restraining order is of the greatest importance. If this pivotal battle is lost, the employee most likely will not have the emotional or financial resources to prosecute a successful appeal of the nonfinal order granting the temporary injunction. Months of being out of work in the employee's most economically productive occupation will take its toll. Lost contact with former clients eventually results in the permanent loss of those customers. Finally, the "wound" of having lost to the former employer on this critical decision may subsequently be aggravated by the "salt" being rubbed on it in the form of an award of attorneys' fees to the employer if a final judgment is entered in favor of the employer. (7)

   While the advantages of defeating the application for temporary injunctive relief are obvious in terms of the employee's short term financial status, a victory also enhances the employee's long-term litigation position, as it puts the employee in a much better bargaining position to work out a compromise with the litigious employer.

   Counsel for the employee defending against a temporary injunction should preface the presentation to the trial court by citing the legal principle that the granting of a temporary injunction is an extraordinary and drastic remedy which should be sparingly granted. (8) Second, the employee's legal memorandum should emphasize that the former employer seeking the temporary injunction must demonstrate that: 1) there is a likelihood of irreparable harm and the unavailability of an adequate remedy at law; 2) the employer has a substantial likelihood of success on the merits; 3) the threatened injury to the employer outweighs any possible harm to the employee; and 4) the granting of a temporary injunction will not disserve the public interest. (9)

   It is submitted that arguing against the existence of irreparable harm at the hearing on the application for temporary injunction is largely futile insofar as the Florida statute regulating noncompete agreements states that the violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the employer seeking enforcement of a noncompete provision. (10) Moreover, the third and fourth requirements cited above as prerequisites for the issuance of a temporary injunction are somewhat nebulous and far too subjective to constitute the primary focus of the employee's attack. Of the prerequisites that must be established in order to secure the temporary injunction, it is establishing a substantial likelihood of prevailing on the merits where the employer has the most vulnerability.

   * Scope of the Order Granting Temporary Injunctive Relief

   While defeating the enforcement of the noncompete is always the primary objective of the former employee, limiting the scope of the injunction may be the only result that is realistically attainable.

   A Florida Second District Court of Appeal decision provides some examples of issues that may arise regarding the scope of the injunction. In Advantage Digital Systems, Inc. v. Digital Imaging Service, Inc., 2003 WL 22848954 (Fla. 2d DCA 2003), the language of the noncompetition agreements on which the temporary injunction was based stated that the employee:

   [W]ill not solicit for sales, service or supplies from Digital Imaging Services, Inc., customers. This noncompete agreement will apply both during employment and for a period of five (5) years after separation from Digital Imaging Services, Inc. This...