Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained. In general, courts decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.
The Law In Florida
The Florida statute on non-competition agreements sets out presumptively reasonable and unreasonable time restrictions for different types of restraints. This means that, in the case of a former employee, that a restriction of less than 6 months is presumed reasonable and a restriction of more than 2 years is presumed unreasonable. Any restriction longer than 6 months or less than 2 years will be analyzed by the court, taking into account other factors surrounding the agreement. The statute also sets out reasonable and unreasonable presumption in the following situations:
- In the case of a former distributor, dealer, franchisee or licensee, 1 year or less is reasonable; more than 3 years is unreasonable.
- When trade secrets are the subject of an agreement, 5 years or less is reasonable; more than 20 years is unreasonable.
The statute also requires a court to modify an unreasonable agreement to bring it within the bounds of reasonableness.
With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Florida courts have determined that the offer of initial employment or continued employment is sufficient consideration or benefit to the employee in exchange fro agreeing not to compete with the employer should the employment relationship terminate.
Reasonableness in Time and Geographic Scope
Examples of non-compete agreements that Florida courts have found to be reasonable include:
- An 18-month restriction to three Florida counties protecting the employer’s legitimate business interests in its bidding process, customer list and specialized industry training it had provided to the former employee.
- A 1-year restriction against a former district service manager of a telephone systems company, limited to the area in which the employee had provided services on behalf of the employer.
- A 2-year covenant restricting a former physician from practicing within 10 miles of any of the former employer’s offices in one county.
- A 360-day, statewide ban on former sales representative from soliciting any customers solicited by the employee in the year prior to voluntary termination of employment.
The courts have found restrictive covenants unreasonable or used the “blue pencil” rule to modify agreements in these situations:
- A three-county restriction where the employee had only worked in one of the counties for the employer-operator of an MRI center.
- A 3-year anti-employee raiding covenant against the former sales manager of an auto dealership was presumptively unreasonable and could only be enforced for the presumptively reasonable period of 2 years.
- A 2-year restriction on a former salesperson from soliciting former customers and potential customers. The court mandated that the restriction could not include customers obtained through the open bidding process even if those customers may have been leads developed while the salesperson worked for the former employer.
Employers need to keep these issues in mind when asking employees to sign restrictive covenants. It is also important to know if potential new hires have a non-compete agreement with a former employer. In some cases, the new employer can be liable to the former employer if hiring the employee would put him or her in violation of the agreement. Different rules may apply to situations in which all or part of a business is being sold and a restrictive covenant is agreed to by the buyer and the seller.