Non-Competes

 Many businesses, especially those focusing on information or e-commerce, want to ensure that the training they provide employees will not someday be used against them by a competitor when an employee is terminated or resigns.  Also, purchasers of businesses want to ensure that the seller will not compete against the very business he/she has just sold.  Generally, the only way to ensure this is by way of a contract commonly known as a Non-Compete Agreement (“NCA”).  

NCAs are really nothing more than another name for restraints on trade.  By statute, restraints on trade are generally unlawful in Florida.  However, what one statute giveth another taketh away. NCAs are specifically permitted in Florida by statute but are subject to very strict requirements. 

Among these is the requirement of a written instrument.  An NCA must be in writing and signed by the party against whom it is to be enforced.  This may seem basic but there are many instances of business seeking to enforce verbal NCAs.  As the old saying goes: No tickee, no laundry.

The statute also covers the length of time that an NCA can be enforced. Depending on the circumstance, the statute considers time frames from six months to five years to be presumptively reasonable.  Moreover, much longer time frames may also be considered reasonable under certain circumstances. 

Another requirement for effectiveness is that an NCA safeguard a “legitimate business interest”.  Quite simply, courts will not enforce arbitrary NCAs.  However, it is important to recall that courts judge what has already occurred; they are classic Monday morning quarterbacks.  What a court will consider a “legitimate business interest” is certainly open to interpretation and cannot be precisely known in advance.  Anticipating judicial interpretation, a properly worded NCA will state the “legitimate business interest” with specificity and will obtain from the signatory an admission of this interest. 

Direct competition is a classic interest protected by NCAs. At its most basic, an NCA permits the restriction of competition against a given business.  By statute, this restriction can encompass a specific geographic area, a specific market area, and a specific amount of time.  However, a properly worded NCA may also prohibit the disclosure of trade secrets or even information that doesn’t quite qualify as a trade secret but that the business considers valuable nonetheless.  In the long run, this oftentimes proves to be a much more important feature.  For example, an NCA may prohibit the signatory from soliciting or even disclosing the names of the business’s clients or from employing the business’s employees for a given amount of time.  

A properly worded NCA can be crucial in safeguarding a business’s trade secrets and business relationships. Businesses should consider NCAs as part of each employment contract and with each employee who comes into contact with sensitive information or clients.

In closing, let me relate a true story. A few years ago my firm represented a start-up company that had first-mover status in its market.  When the company’s principals came to see us, we initially inquired about existing NCAs.  They had none.  We immediately drafted one for them and insisted that their key employees sign them.  The company’s CIO refused.  It turns out he was already undertaking plans to circumvent the company and set up shop on his own. Luckily for our client, we were able to quickly control any damage.  Though this problem can occur frequently in the freewheeling new economy, it is easily remedied with a properly worded NCA.