Florida Business Litigation Lawyer Blog
Many businesses require employees, independent contractors, and others to sign restrictive covenants. Common restrictive covenants are non-compete covenants prohibiting competition with the business, non-solicitation covenants prohibiting solicitation of the businesses’ customers and employees, and non-disclosure covenants preventing the disclosure of certain company information. However, these covenants have certain restrictions on enforceability. Some of those restrictions limit enforceability to a particular durational period of time. Other restrictions prevent the covenant from being enforced beyond a certain geographic area or a particular line of business. Fla. Stat. § 542.335. The limitations placed on restrictive covenants can provide a defendant with a basis to avoid enforcement of the covenant. The Miami business litigation attorneys of the Mavrick Law Firm represent 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.
The defendant in a lawsuit for breach of a restrictive covenant can argue his or her alleged competitive actions do not breach the restrictive covenant because they pertain to a different line of business as the plaintiff’s company. A defendant might argue he or she does not target the same types of customers or offers different product or services than those of the plaintiff even both operate in the same industry. USI Insurance Services of Fla., Inc. v. Pettineo, 987 So. 2d 763 (Fla. 4th DCA 2008), addressed this issue within the context of a business purchase. In USI, the owner of an insurance agency sold the company to a buyer pursuant to a sales agreement that included a non-compete provision prohibiting the seller from providing any insurance-related services. After the purchase, the buyer decided it would only sell expensive insurance policies. The seller then opened a new business selling more economical insurance policies that the buyer refused to sell. The buyer sued the seller for breaching the non-compete restrictive covenant and asked the trial court to enjoin the seller from competing. The trial court denied the injunction request because the buyer did not operate a “like business” as the seller. The buyer catered to persons desiring expensive insurance policies while the seller catered to persons desiring more economical insurance policies. However, the trial court was reversed on appeal. The appellate court determined the buyer’s decision to refrain from selling economical insurance policies did not remove the buyer from the broad “line of business” the seller agreed to avoid under the sales contract. USI Insurance’s broad interpretation of “line of business” suggests that persons or companies targeting different customers in the same industry are within the same “line of business.”
The holding in USI Insurance raises questions about when companies are, and are not, in the same line of business. The questions can get more complex for companies with different divisions or product lines. Lincare, Inc. v. Tinklenberg, 2020 WL 10354020 (M.D. Fla., June 26, 2020) may provide some instruction on these complexities. In Lincare, a large conglomerate had many business lines in the medical services and supplies industry. The conglomerate hired a manager that only worked in two of the conglomerate’s business lines. The manager was required to sign a broad non-compete agreement prohibiting the manager from competing against the conglomerate in all of its business lines. The manager left the conglomerate for a competing company and the conglomerate sought an injunction to stop the manager from competing. The court found that the agreement was overbroad and narrowed the restrictive covenant to the two specific business lines the manager worked in during her employment with the conglomerate.
Lincare appears to take a narrower interpretation of “line of business” than USI Insurance. Lincare allowed the manager to continue working in the medical services and supplies industry so long as the manager did not participate in the same line of business as she did when she worked for the conglomerate. Conversely, USI Insurance broadly prohibited the seller from working in the insurance industry even though the customers pool was different. This shows that determining the scope of a “line of business” is case specific and fact specific. The result could very well come down to each individual judge’s interpretation and the facts presented to the judge.
The Miami business litigation lawyers of the Mavrick Law Firm also represent 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.