FLORIDA NON-COMPETE AGREEMENTS: COURTS HAVE DISCRETION IN SETTING BOND AMOUNTS

Florida law generally requires that a party post a “bond” before a Judge will enter an injunction order that prohibits the opposing party from competing in violation of a non-compete agreement. The purpose of requiring a bond as a condition to issuance of a temporary injunction is to provide a sufficient funds to cover the adverse party’s damages, including attorney’s fees and costs, in the event the court later determines that the injunction was wrongfully issued. Richard v. Behavorial Healthcare Options, Inc. 647 So.2d 976 (Fla. 2d DCA 1994). Generally, the court hears the former employee’s testimony providing a good faith estimate of what his or her foreseeable damages would be if the injunction is later found to be wrongfully entered. The bond amount generally constitutes the limits of the adverse party’s recovery if the injunction is found to be wrongfully entered, therefore, the bond initially set by the court constitutes the court’s determination of the foreseeable damages based on the good faith representations of the parties. Parker Tampa Two, Inc. v. Somerset Dev. Corp., 544 So.2d 1018 (Fla.1989). Peter Mavrick is a Fort Lauderdale, Miami, and Palm Beach non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

In Montville v. Mobile Medical Industries, Inc., 855 So.2d 212 (Fla. 4th DCA 2003), Phyllis Montville (“Montville”) and Maxine Starnes (“Starnes”) signed a non-compete and non-solicitation agreements with their employer Mobile Medical Industries, Inc. (“MMI”) (the “non-compete agreements”). The non-compete agreements provided that after their employment was terminated, Montville and Starnes were prohibited from competing with MMI and soliciting MMI’s personnel or referral sources for a twelve-month period. Subsequently, Starnes resigned, and Montville was fired, allegedly for cause.

MMI filed a lawsuit against Montville and Starnes for an injunction to enforce the non-compete agreement and for damages. MMI alleged that both Montville and Starnes assisted a competitor in forming a new, competing home health care business in Palm Beach County, and solicited MMI’s personnel and its referral sources. At the bond hearing, Montville testified she earned approximately $300,000 per year while working for MMI, but she had not worked since being fired. Montville also testified that she continued to receive her base salary from MMI. Starnes testified that she was earning $75,000 per year in her new position as Administrator for the competitor. The trial court granted a temporary injunction that enjoined Montville from competition and solicitation for the twelve-month period of her agreement, and enjoined Starnes from competition for a period three months, and from soliciting MMI’s personnel or referral sources for a period of six months. The periods ran from the date of the order. MMI was required to post a $50,000 bond. Montville and Starnes immediately appealed.

On appeal, Montville and Starnes argued that the trial court had no discretion in setting the bond amount on a temporary injunction for a non-compete agreement. Section 542.335(1)(j) of the Florida Statutes states, in pertinent part, that “[n]o temporary injunction shall be entered unless the person seeking enforcement of a restrictive covenant gives a proper bond….” Montville and Starnes argued that the statute, removes the court’s general discretion in setting bond for a temporary injunction. Montville and Starnes contended the wording of Rule 1.610(b) of the Florida Rules of Civil Procedure (the rule on temporary injunctions), allows the bond to be an amount the court deems proper, whereas the wording of the statute only requires a proper bond without any reference to the court’s discretion. The appellate court disagreed. The appellate court held that the wording of the rule and the statute are substantively indistinguishable, and that both simply required that the trial court exercise its sound judicial discretion to set a proper bond amount.

Alternatively, Montville and Starnes argued that the trial court abused its discretion in setting the bond amount for $50,000, because their foreseeable damages were at least $400,000, including their combined loss of salary, attorney’s fees, and costs. The appellate court disagreed and concluded that there was no abuse of discretion. The appellate court held that Montville and Starnes’ argument failed to take into account several mitigating factors, such as: (1) the continued payment of Montville’s base salary after her termination, (2) the reduced time restraints on Starnes, and (3) the prospects of non-competitive employment opportunities. The appellate court also held that when it considered foreseeable damages, the trial court was permitted to consider factors other than anticipated damages and costs, including the adverse party’s chances of overturning the temporary injunction. See Longshore Lakes Joint Venture v. Mundy, 616 So.2d 1047 (Fla. 2d DCA 1993). The appellate court recognized that a trial court’s initial determination of a bond amount is often based upon speculative information and an affected party is free to move for modification should subsequent events prove the bond amount to be insufficient or excessive. The appellate court concluded that there was no abuse of discretion by the trial court and affirmed the trial court’s orders.

Peter Mavrick is a Fort Lauderdale, Miami, and Palm Beach non-compete lawyer who has substantial experience with business litigation. This article does not serve as a substitute for legal advice tailored to a particular situation.