MIAMI BUSINESS LITIGATION: FLORIDA’S “PRIOR BREACH” DEFENSE TO NON-COMPETE AGREEMENTS

The “first to breach” or “prior breach” doctrine is a commonly raised defense by employees in actions brought by their former employers to enforce restrictive covenants. Under Florida law, an employer’s prior breach of its employment contract may prohibit the employer from enforcing restrictive covenants under the same agreement. Employees typically raise the “prior breach” defense based on allegations that the former employer failed to pay wages due under their employment contract. This alleged failure to pay could constitute a material breach of the entire employment agreement and render the non-compete unenforceable. In the non-compete and trade-secret context, employers seek injunctions to stop their former employees from unlawfully competing and/or exposing confidential, trade secret information. In these situations, employers are generally barred from enforcing covenants (such as non-compete agreements or confidentiality provisions) against the employee if the material breach was based on a “dependent” covenant in the contract and the non-compete covenants are not “independent” covenants. Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

When the “prior breach” doctrine is raised as a defense, Florida courts are tasked with reviewing the subject non-compete agreements to determine whether the relevant contract provisions are dependent or independent covenants. Florida courts must construe the subject contract according to its plain language and “consider the provisions at issue in the context of the entire agreement in order to achieve ‘a reasonable construction to accomplish the intent and purpose of the parties.’” Hand v. Grow Constr., Inc., 983 So. 2d 684 (Fla. 1st DCA 2008). Whether the payment obligations under the employment agreements were dependent or independent covenants is an issue of law that turns on the proper interpretation of the contracts. Morgan v. Herff Jones, Inc., 883 So. 2d 309 (Fla. 2d DCA 2004). “Florida law limits [the] defense [of a prior breach] to ‘dependent covenants.” Reliance Wholesale, Inc. v. Godfrey, 51 So. 3d 561 (Fla. 3d DCA 2010).

The general rule in Florida is that a “material breach of [a contract] allows the non-breaching party to treat the breach as a discharge of his contractual liability.” In re Walter M. Thomas, Debtor, 51 B.R. 653 (M.D. Fla. 1985). Indeed, the Supreme Court of Florida explained that “the nonbreaching party is relieved of its duty to tender performance and has an immediate cause of action against the breaching party.” Hospital Mortg. Grp. v. First Prudential Dev. Corp., 411 So. 2d 181 (Fla. 1982). “Whether contractual provisions are considered dependent or independent is generally determined by the intent of the parties based on a reading of their entire contract.” Richland Towers, Inc. v. Denton, 139 So. 3d 318 (Fla. 2d DCA 2014). In Florida, covenants are generally considered dependent unless contrary language appears in the contract.

A contractual provision is considered dependent under Florida law:

where it goes to the whole consideration of the contract; where it is such an essential part of the bargain that the failure of it must be considered destroying the entire contract; or where it is such an indispensable part of what both parties intended that the contract would not have been made with the covenant omitted.

SEB S.A. v. Sunbeam Corp., 148 Fed. Appx. 774 (11th Cir. 2005). A material breach to excuse performance only occurs when a party breaches “mutually dependent covenant[s]” in a contract, and does not occur when a contract is “composed of independent covenants.” Mizner Land Corp. v. Abbott, 128 Fla. 489 (1937). A dependent covenant “is one that depends on the prior performance of some act or condition.” Seybold v. Nicholson USA Properties, LTD., 890 So. 2d 351 (Fla. 5th DCA 2004).

By contrast, an independent covenant concerns only “a part of the consideration on both sides,” and allows for damages rather than nonperformance as a remedy. Nolan v. Lunsford, 142 Fla. 671 (1940). The contract must expressly provide contrary indications that the parties considered the provision independent. Taylor v. Genesee & Wyoming, Inc., 2015 WL 12732898 (M.D. Fla. Nov. 13, 2015). “In determining whether covenants are dependent or not, the intention of the parties is sought for and regarded in the light of all the circumstances evidenced by the contract.” Nolan v. Lunsford, 196 So. 193 (Fla. 1940).

Accordingly, a former employee may be entirely relieved of obligations under a non-compete agreement if the former employer wrongfully refused to pay compensation under the employment agreement. Therefore, an employer can rebut the “prior breach” defense by showing that the employer did not commit a prior breach, the prior breach was not material, the material breach was not based on a dependent contract provision, or the restrictive covenants were independent of the rest of the agreement.

Peter Mavrick is a Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.