You’ve invested a lot in your business. It’s becoming successful. You even have trade secrets and know-how that give you a leg-up on your competition. And you have personnel that you have invested time and money acquiring, training and maintaining. Your confidential information and your personnel are major assets of your business and big reason for your success. As such, you require all employees and contractors to sign a non-compete or restrictive covenant agreement. But, is it enforceable, or are you just wasting time and energy with these agreements?
The enforceability of non-compete agreements (or restrictive covenant agreements) is determined by state law. Florida has a fairly strong valid restraint on trade or commerce statute (Fla. Stat. Section 542.335). According to Florida Statute, a non-compete agreement that restricts or prohibits competition during or after the term of employment or engagement is not prohibited, provided that the agreement is reasonable in duration, geography, and line of business. So, what’s reasonable?
What is reasonable in duration? For a former employee, agent, or independent contractor, a term of six (6) months or less is presumed reasonable and a term greater than two (2) years is presumed unreasonable. However, both of these presumptions are rebuttable, which means that the other party can provide factual evidence to defeat the presumption of reasonableness or unreasonableness. These numbers increase for persons that were distributors, dealers, sellers, and licensees; and they increase even higher for restrictive covenants predicated upon the protection of trade secrets.
What is a reasonable geographic scope? The geographic scope should not be broader than is necessary to protect the legitimate business interests of the company. For some companies, the geographic scope might be limited to a five mile radius or a small town; whereas, for other larger companies, it might be reasonable to have a nationwide geographic scope. This will be factually dependent upon the size of the business, the nature of the business, and the type of engagement the company has with the person.
What is a reasonable limitation for line of business? The line of business prohibited in the non-compete should also not be broader than is necessary to protect the business. The agreement does not necessarily need to be limited to exactly what the employee does; but it does need to be narrowly defined. For example, a sales person in a pharmaceutical sales company might have a non-compete that prohibits a former sales person from taking employment with a pharmaceutical manufacturing company or distributing company. In this example, it might not be enforceable to prevent or prohibit the former employee from gaining employment with any manufacturing or distributing company, but it might be enforceable to prevent or prohibit the former employee from working for or with specific manufacturing or distributing companies, especially ones with a close relationship.
In many cases, if the limitations relating to duration, geographic scope or line of business are not reasonable, a court will not modify the agreement to make it reasonable, it will simply void the agreement or make the agreement entirely unenforceable, so it is extremely important that you narrowly define these terms when you are drafting your non-compete.
In Florida, the non-compete must be in writing and it also must be signed for it to be enforceable. If the language is simply included in an outdated employee handbook, and it is never signed, a court will not enforce the agreement.
Also, you must have a legitimate reason, a legitimate business interest, in order for your non-compete to be enforceable. According to Florida Statutes, the company seeking enforcement of the non-compete must be able to show that the non-compete was or is being used to protect one of the following legitimate business interests: to protect (1) trade secrets; (2) valuable confidential business or professional information that otherwise does not qualify as trade secrets; (3) substantial relationships between vendors, manufacturers, distributors, etc.; (4) customer, client or patient goodwill; (5) extraordinary or specialized training.
Any non-compete or restrictive covenant not supported by a legitimate business interest is UNLAWFUL and is VOID and UNENFORCEABLE, so it is extremely important that you have a good reason for using a non-compete agreement.
The Walk Law Firm is available to review your current non-compete agreement in order to help you determine if, in fact, it would be enforceable should you ever need to use it. Document review and drafting can be handled on a Flat Fee or Fixed Fee basis. To learn more, please contact us at the Walk Law Firm.
This article is not intended as legal advice; rather, it was written for general information purposes only.