POSTED BY CHRISTOPHER DUKE ON APRIL 10, 2013

Password encrypted computers, locked file drawers, swipe cards allowing for restricted access. These are all measures taken by businesses to protect their confidential business information and trade secrets. While these steps are important, they are only part of the solution in protecting your company's valuable business information.  More and more employers today are using restrictive covenants such as noncompete agreements and confidentiality agreements to legally bind their employees and ensure that valuable business information is not compromised or handed over to a competitor.

Disfavored and often prohibited outright by the common law, noncompete agreements are making a resurgence as states throughout the country enact laws designed to protect employers' legitimate business interests. Florida is a prime example, having put into place a statutory scheme setting forth in detail the requirements necessary to enforce noncompete agreements against former employees.  To be enforceable, not only must a noncompete agreement be reasonable in time and geographic scope, it must protect a legitimate business interest and protect information the employer has tried to keep confidential.   

Armed with the right knowledge and properly drafted agreements, an employer can prevent departing employees from taking confidential business information and using that information to compete unfairly against a former employer.  Gone are the days when an employee could defiantly state "My noncompete isn't worth the paper it's written on!" 

At the 18th Annual Akerman Labor & Employment Law Seminar, I will be discussing all aspects of noncompete and confidentiality agreements, including drafting tips and how these agreements can be used to protect confidential business information.  I will also focus on the process of enforcing noncompete agreements, from the initial filings all the way through to a court judgment.

POSTED BY RICHARD D. TUSCHMAN ON DECEMBER 14, 2012

Section 542.335 is the Florida statute that governs non-compete agreements.  As most practitioners know, the statute is not limited to employment relationships.  Thus, it is not uncommon for businesses and independent contractors to enter into non-compete agreements.  

But what happens when an employee who has signed a non-compete agreement becomes an independent contractor of that business?  Can the worker be bound by the non-compete agreement that she signed when she was an employee?  According to Florida’s Fourth District Court of Appeals recent decision in Anarkali Boutique v. Ortiz (Fla. 4th DCA, December 12, 2012), the answer is "yes."

Anarkali Boutique hired Nahomi Ortiz as an employee in 2008.  Ortiz signed a non-compete agreement in consideration for her "continued at-will employment by [the company]."  The agreement contained a 100-mile restriction that applied for "two (2) years after I am no longer employed by Company."  The agreement also stated that "[a]ny subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement."

In 2009, after building her own clientele, Ortiz began working for the boutique as an independent contractor.  In 2011, Ortiz left Anarkali, started a competing business less than 5 miles away, and took many of Anarkali's customers with her.  Anarkali sued Ortiz for violating her non-compete agreement. 

In the trial court, Ortiz argued that when the company changed her status to an independent contractor, she ceased being an employee under the agreement, and thus the two-year non-compete period began running at that time. Because that two-year period expired before she left to start her business, Ortiz argued that she was not bound by the non-compete agreement.  The trial court agreed and denied Anarkali’s motion for a temporary injunction on this basis alone.

But on appeal, the Fourth DCA reversed the trial court's decision and remanded the case for further consideration by the trial court.  The Fourth DCA noted that the agreement was not entirely clear, as it referred to "employment" but also stated that "[a]ny subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement."  The court resolved this apparent conflict by giving effect to the intent of the parties.  The "obvious purpose" of the agreement, the court concluded, "was to preclude the worker from competing with the company after the company trained the worker and allowed her to build her own clientele."  Thus, the two-year period began running when Ortiz left the boutique, not when she became an independent contractor two years earlier. 

For employers, the takeaway of the Anarkali case is that careful drafting of non-compete agreements is critical.  Although the employer in Anarkali may ultimately prevail, it could have avoided an adverse ruling in the trial court if the non-compete agreement had been drafted to expressly cover an independent contractor relationship.  As noted above, section 542.335 authorizes such agreements.

POSTED BY RICHARD D. TUSCHMAN ON SEPTEMBER 18, 2012

Florida's statute governing the enforcement of non-compete covenants provides that a court may enforce such covenants in favor of an assignee or successor, provided that "the restrictive covenant expressly authorized enforcement by a party's assignee or successor."  §542.335(1)(f).

Is a general assignment clause in an agreement that contains a non-compete covenant sufficient under the statute?  The answer to that question is "yes," according to Florida's First District Court of Appeal, DePuy Orthopaedics, Inc. v. Waxman, Case No. 1D12-897 (Fla. 1st DCA, August 3, 2012).  

DePuy manufactures and sells orthopedic products, and it promotes the sale of its products through independent distributors.  A company called Joint Venture, Inc. was DePuy's distributor in South Florida from 1999 to April 30, 2011.  Joint Venture had signed employment agreements with three of its salesmen that contained non-compete covenants.  The agreements contained a general assignment clause: "[Joint Venture's] rights and obligations under this Agreement shall inure to the benefit of and be binding upon [Joint Venture's] assigns and successors."

In March 2011, three salesmen left Joint Venture, joined a new company and started calling on their old accounts in their former DePuy territories, effectively competing with DePuy.  On May 27, 2011, Joint Venture and DePuy confirmed the assignment of Joint Venture's rights in a new agreement, which specifically provided that Joint Venture was assigning its "right to enforce the covenants not to compete executed by the [salesmen] and to pursue damages."

Joint Venture's intent to assign its rights to enforce the non-compete covenants to DePuy was now clear. But was the general assignment language in the employment agreements sufficient under the statute to permit enforcement in favor of DePuy?  

Reversing the trial court, the First DCA said yes, holding that "the statutory requirement of an 'expressly authorized enforcement' of the restrictive covenant to the assignee is satisfied by a general assignment clause in the contract creating the restrictive covenant."  The court cited approvingly to the Fifth DCA's decision in Patel v. Boers, 68 So. 3d 380 (Fla. 5th DCA 2011), which reached the same conclusion.

In a dissenting opinion, Judge Wolf opined that under the plain language of the statute, the restrictive covenant itself must expressly authorize enforcement by a party's assignee or successor.  "A general assignment clause does not meet this requirement," wrote Judge Wolf.

But for now, at least in the First and Fifth District Courts of Appeal, such general assignment clauses are sufficient.  Companies contemplating enforcement in other judicial districts in Florida, however, would be well-advised to include specific assignment language in the restrictive covenants themselves.

POSTED BY RICHARD D. TUSCHMAN ON SEPTEMBER 4, 2012

Rose LaRue began working for Kalex Construction and Development in February 2006 as a vice-president.  After her termination in December of 2009, LaRue sued Kalex, contending that upon her hiring, she was orally promised that she would receive a 25% ownership interest in the company after three years of employment with Kalex.  Kalex denied the allegations.

The issue in LaRue was whether Florida's statute of frauds barred her claim.  Section 725.01, Florida Statutes, provides in part:

No action shall be brought . . . upon any agreement that is not to be performed within the space of 1 year from the making thereof . . . unless the agreement or promise upon which such action shall be brought, or some note or memorandum thereof shall be in writing and signed by the party to be charged therewith or by some other person by her or him thereunto lawfully authorized.

The statute of frauds, as noted by the court, "was enacted to prevent fraud and the enforcement of claims based on loose verbal statements made faulty by the lapse of time."  In other words, the statute of frauds recognizes that some plaintiffs lie, or can be mistaken, about the formation of contracts.  And the more time that goes by, the harder it is for a defendant to defend against the allegation that the parties entered into a binding contract.  Thus, the statute of frauds imposes a common-sense rule that agreements that are not to be performed within one year must be in writing.

As the court in LaRue noted, there are exceptions to this general rule.  For example, where the contract is for the sale of land and the relief sought is for specific performance or other equitable relief, partial performance may remove an oral agreement from the statute of frauds.  In addition, full performance of an oral agreement may remove the agreement from the statute of frauds if the agreement is capable of being performed within a year and was, in fact, performed within one year.

But the exceptions to the statute of frauds could not help LaRue, whose complaint was based on an alleged oral employment agreement that she would receive a 25% ownership interest in the company if she worked for the company for three years.  "Because the alleged agreement was incapable of being performed in one year, her claim is barred by the statute of frauds[,]" the court concluded.

POSTED BY RICHARD D. TUSCHMAN ON JULY 23, 2012

A recent case from Florida’s Fourth District Court of Appeals, Ioannides v. Romagosa (Fla. 4th DCA, July 11, 2012), illustrates these principles.  Dr. Tim Ioaniddes is a dermatologist who recruited Dr. Ricardo Romagosa to open one of his satellite offices in Stuart and work with him for three years under a contract.  The parties anticipated that, after three years, Dr. Romago would become a partner.  

When recruiting Dr. Romagosa, Dr. Ioannides allegedly told him that his “total annual compensation from salary and bonuses would easily exceed $500,000 per year for the years prior to making partner.”  Thereafter, the two doctors entered into a contract that contained specific provisions regarding how Dr. Romagosa’s salary and bonuses would be calculated.

Dr. Romagosa began working for Dr. Ioannides, but the relationship soon soured.  Dr. Romagosa left the practice after 23 months and sued Dr. Ioannides, claiming that Dr. Ioaniddes fraudulently induced him into entering into his employment contract by orally representing that he would earn more than $500,000 per year.  The case went to trial, and the jury awarded Dr. Romagosa $760,000 damages on his fraudulent inducement claim.  

But on appeal, the Fourth DCA vacated the award to Dr. Romagosa and remanded the case to the trial court with directions to enter judgment in favor of Dr. Ioannides.  

Why the reversal of fortune?  Because, under Florida law, a party cannot recover in fraud for alleged oral misrepresentations that are adequately covered or expressly contradicted in a later written contract.  And in this case, the parties’ written contract adequately covered the issue of Dr. Romagosa’s compensation.  Thus, regardless of whether Dr. Ioannides actually told Dr. Romagosa that his compensation “would easily exceed $500,000 per year,” and regardless of whether this statement was true, Dr. Ioannides could not be held liable for fraudulent inducement.  The terms of Dr. Romagos’s compensation were detailed in a subsequent written contract, and it was that contract that determined the parties’ legal rights and obligations.

For Florida employers, the lesson of the Ioannides case is clear.  Set forth the terms of a new hire’s employment in writing in an offer letter or employment contract.  And make it clear that the offer letter or contract, and not any prior representations, will determine the parties’ legal rights and obligations. 

POSTED BY SCOTT T. SILVERMAN ON JUNE 12, 2012

In Rogers v. Vulcan Manufacturing Co., Inc., No. 11-3927 (Fla. 1st DCA June 1, 2012), the First District Court of Appeal explained that employers must carefully draft non-compete agreements to avoid owing attorneys' fees to former employees who do not pay for their own defense, but, rather, have it funded by a subsequent employer.  In the case, a former employee prevailed in a non-compete case when the former employer's suit was involuntarily dismissed for lack of prosecution. The contract provided for attorneys' fees to the prevailing party: "In any action to enforce any term, condition, or provision of this agreement, the prevailing party shall be entitled to recover the reasonable attorney's fee incurred to enforce same."  The trial court awarded $0 in fees, reasoning that the defendant did not personally "incur" any fees, because they were paid by the subsequent employer.  On appeal, the First DCA disagreed, opining that the clear intent of the agreement was for the loser to pay attorney's fees incurred in the case, regardless of the source of the funds.  The court stated that “If the parties had intended to limit entitlement to situations in which the prevailing party was the one who actually paid attorney’s fees and was seeking reimbursement, or incurred an obligation to pay such fees, the Agreement could have so provided. But it did not, and the trial court erroneously read such a limitation into the Agreement.”  This case illustrates the need for employers to consider revising their non-compete agreements to make sure that they are not obligated to pay fees in a losing effort to enforce a non-compete, where the defense is funded by a subsequent employer.  Although not an issue in the case, employers should also be aware that an agreement to fund defense of a non-compete may be grounds for a tortious interference claim against the subsequent employer.

POSTED BY RICHARD D. TUSCHMANON APRIL 2, 2012

Non-compete agreements need to actually prohibit the competitive activities at which they are aimed.  Thus, they must reflect the reality of the businesses for which they are drafted. 

So, if you are drafting or reviewing a non-compete agreement, it's critical that you consider not only what the business does, but how it does it- and how a former employee might be able to take away business notwithstanding that boilerplate language you were thinking about using.

A recent decision by Florida’s Fifth District Court of Appeals illustrates the problem of boilerplate language.  The former employee, an equine veterinarian, signed a non-compete agreement, which provided:

B. During the term of this agreement, and for a period of two (2) years after termination thereof, Employee shall not own, manage, operate, control, be employed by, assist, participate in, or have any material interest in any business or profession engaged in general equine veterinary practice located within a thirty (30) mile radius of 19801, County Road 561, Clermont, Florida [the employer’s business address].. 

All that boilerplate – “own, manage, operate, control, be employed by, assist, participate in, or have any material interest in” – sounds pretty impressive, right?

Not in this case.  Think about it – did you ever take your dog or cat to the vet's office and see a horse in the waiting room?   I didn't think so. The problem for the employer here was that equine veterinarians typically make house calls (or stable calls).  So, the location of an equine veterinarian’s office is unimportant – it's where the horses are that counts.  Because the plain language of the agreement did not prohibit the former employee from providing her services within the 30-mile radius, the 5th DCA reversed the trial court's injunction against the former employee.  The non-compete agreement, and all of its boilerplate language, was ultimately useless.