FLORIDA LAW ON NON-COMPETITION COVENANTS: THE REQUIREMENT THAT COVENANTS BE READ IN FAVOR OF REASONABLE PROTECTION

Florida law requires that courts read non-competition covenants in favor of providing reasonable protection to a company’s legitimate business interest and prohibits courts from reading the non-competition covenant narrowly against the restraint. Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. 4th DCA 2012) provides an example of just how broadly Florida courts could read a non-competition agreement.

In Anarkali, a worker entered into a non-competition covenant with a company in 2008 as part of an employment agreement. The non-competition covenant restricted the worker from competing with the company for a 2-year term beginning when the worker is “no longer employed by Company.” Anarkali Boutique, Inc., 104 So. 3d at 1203. In 2009, the worker’s status with the company changed from employee to independent contractor. Two years later, in 2011, the worker left the company and opened a competing business. The company sued to enforce the non-competition covenant.

The trial court found that because the 2-year term of the non-competition covenant would begin to run when the worker was “no longer employed by Company,” the 2-year term began to run in 2009, i.e., when the worker ceased being an employee of the company. Consequently, the 2-year term expired in 2011, i.e., before the worker opened her own competing business. Therefore, the trial court held that the non-competition covenant had expired and the company could not now enforce the non-competition covenant. On appeal, the appellate court disagreed.

The appellate court found that the worker’s change from employee to independent contractor did not cause the 2-year non-competition period to begin running. Instead, the non-competition period began to run when the worker left the company in 2011. The appellate court based its decision in part on Florida statutory law that requires courts to read non-competition covenants “in favor of providing reasonable protection to all legitimate business interests” and prohibits courts from reading non-competition covenants “narrowly, against the restraint, or against the drafter of the contract.” Fla. Stat. § 542.335(1)(h). Reading the agreement in accordance with Florida law, the appellate court held that the “obvious purpose” of the non-competition agreement “was to preclude the worker from competing with the company after the company trained the worker and allowed her to build her own clientele. It would be unreasonable to construe the contract as having the two-year non-compete period begin to run while the company still was employing the worker as an independent contractor … but have the non-compete period expire just before the worker leaves the company to start her own competing business. To hold otherwise would lead to absurd conclusion.” Anarkali Boutique, Inc., 104 So. 3d at 1205.

For employees, the Anarkali decision provides an example of how broadly courts will read a non-competition covenant. Florida law on non-competition covenants, unlike the law in other states, forbids courts from reading non-competition covenants narrowly. Consequently, Florida law on non-competition covenants tends to be employer-friendly. As explained in a previous article, had the same facts been presented before a court in another jurisdiction, the outcome might have differed.

For employers, Anarkali serves as yet another example of how proper drafting could prevent incurring substantial legal fees. Although the non-competition covenant in Anarkali was read in favor of the company, the company prevailed only at the appellate level. Had the employment contract included a provision regarding the worker’s change to independent contractor status, the argument in Anarkali could have been avoided.

Peter T. Mavrick has successfully represented many businesses in trade secret and non-competition covenant litigation. This article is not a substitute for legal advice tailored to a particular situation. Peter T. Mavrick can be reached at: Website: www.mavricklaw.com; Telephone: 954-564-2246; Address: 1620 West Oakland Park Boulevard, Suite 300, Fort Lauderdale, Florida 33311; Email: peter@mavricklaw.com.