FORT LAUDERDALE NON-COMPETE AGREEMENTS: DELAWARE CHOICE OF LAW PROVISION IN FLORIDA CONTRACT

Noncompete agreements sometimes designate the laws of other states to govern the parties’ contractual obligations, even if the agreement is made in Florida. This is known as a choice of law provision. When these choice-of-law provisions are valid and enforceable, they can have significant repercussions on the results of noncompete litigation. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Palm Beach, Boca Raton, and Miami, Florida. The Mavrick Law Firm represents clients in breach of contract litigation, trade secret litigation, non-compete agreement litigation, employment litigation, trademark litigation, and other legal disputes in federal and state courts and in arbitration.

Many corporations and limited liability companies throughout the United States are incorporated or organized under Delaware law, even though they may have no particular connection to Delaware. This is because there are several benefits that medium to large sized business can enjoy from Delaware incorporation. For example, intra-corporate disputes for Delaware corporations are adjudicated by the Delaware Court of Chancery which is a judicial body designed to quickly and effectively resolve such matters without a jury. Because of the attractiveness of Delaware incorporation, many corporations will often choose Delaware as a choice of law in their contracts. As a result, Florida courts will often adjudicate disputes under Delaware law.

When applying foreign law in Florida, courts “maintains the traditional distinction between substantive and procedural matters.” Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006). “Generally, when confronted by a choice of law problem, a court will apply foreign law when it deals with the substance of the case and will apply the forum’s law to matters of procedure.” Siegel v. Novak, 920 So. 2d 89 (Fla. 4th DCA 2006). This can be a critical issue when employers seek injunctions in non-compete matters. Florida courts will apply Florida law as it relates to the procedural issues, such as whether a temporary injunction should be issued, and foreign choice of law for the substantive law questions associated with that analysis, such as the element of whether there is a likelihood of success on the merits.

The choice of Delaware or another state’s law can have significant effect on the result of litigation, particularly when it is the choice of law for non-compete agreements. Florida law concerning non-compete agreements is generally the most “pro-employer” in the nation, as discussed in a previous article.

Delaware and Florida law generally adjudicate non-compete disputes pursuant to the same fundamental legal analysis. For example a Delaware court held that, “[a]lthough the non-competition agreements are valid contracts, they will not be enforceable unless the following requirements are met: (1) their duration is reasonably limited temporally, (2) their scope is reasonably limited geographically, (3) their purpose is to protect legitimate interests of the employer, (4) their operation is such as to reasonably protect those interests.” Tristate Courier & Carriage, Inc. v. Berryman, C.A. 20574-NC, 2004 WL 835886 (Del. Ch. Apr. 15, 2004). Section 542.335, Florida Statutes, also articulates the same requirement of reasonable temporal and geographical scope, that the agreement protect a legitimate business interest. The primary divergence arises because Florida’s non-compete law derives from a statutory framework, which provides for particular legal presumptions, while Delaware non-compete law derives from common law (case precedent). These differences can create divergent results. For example, in enforcing non-compete agreements under Florida law, there is a presumption that a covenant longer than two years is unreasonable in relation to employees. Delaware law has no such presumption. Florida statutes, however, provide a mechanism by which unreasonable covenants not to compete may be modified by the court to become enforceable. “If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.” Section 542.335, Florida Statutes. Delaware law does not have this provision. Accordingly, a three-year non-compete agreement is more likely to be enforced by a court under Delaware law, but if the court concluded that three years was unreasonable, the entire non-compete agreement becomes unenforceable. Alternatively, a court interpreting that same agreement under Florida law would be more likely to find that three years is an unreasonable term, but such a finding would result in the non-compete term simply being reduced to a reasonable period of time.

While Florida law is generally pro-employer, that does not necessarily mean that an employer will always receive a better result in a non-compete case under Florida law than if the non-compete agreement had a different choice of law. For example, in Videojet Techs. Inc. v. Garcia, 8:07-CV-1407T30MAP, 2008 WL 2415042 (M.D. Fla. June 12, 2008), the court was reviewing whether a successor company could enforce a non-compete agreement. A company cannot enforce a non-compete agreement under Florida law if it was a successor, and not a signatory, to the original agreement, unless “the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.” Section 542.335, Florida Statutes. The Videojet plaintiff would not have been able to enforce the non-compete agreement had it been governed by Florida law. Since the non-compete contract chose the law of Illinois, however, this particular impediment was of no consequence, and the Videojet plaintiff was able to enforce the non-compete agreement even though it would have been unlawful under Florida law.

In the recent case, Quirch Foods LLC v. Broce, 45 Fla. L. Weekly D2336 (Fla. 3d DCA Oct. 14, 2020), the court was evaluating whether to reverse the trial court’s denial of an emergency injunction concerning former employees who had entered into noncompete agreements. The trial court denied the plaintiff’s motion on the premise that “[u]nder Delaware law, a restrictive covenant entered into after an employee’s service begins is enforceable [only] if supported by new consideration in the form of a corresponding benefit or a benefit change in employment status.” Quirch Foods concluded that the trial court completely misinterpreted the case that was the basis of its ruling. Quich Foods reviewed Delaware law concerning noncompete agreements and found that there is no such requirement for additional consideration and reversed the trial court. Quich Foods highlights the risk in enforcing a contract in Florida under a different state’s choice of law that the court may make a mistake which could have been caught had the court been more familiar with the subject law.

Peter Mavrick is a Fort Lauderdale non-compete lawyer who also practices in Palm Beach, Boca Raton, and Miami-Dade. This article does not serve as a substitute for legal advice tailored to a particular situation.