MIAMI BUSINESS LITIGATION: LEGALITY OF GEOGRAPHIC AREA IN NON-COMPETE AGREEMENTS

Businesses commonly enter into restrictive covenants with their employees to prohibit them from unfairly competing with the business during and after employment. Restrictive covenants include contracts that restrict competition, such as non-compete agreements, non-disclosure agreements, and confidentiality agreements. When preparing a restrictive covenant, what provisions should be included? Typically, a business should include provisions that specifically define the geographic area, time limit, and line of business of the covenant. Many states require that the restrictive covenant be reasonable in time, geographic area, line of business, and be supported by a legitimate business interest. Seemingly, the requirement that a restrictive covenant be reasonable in geographic area means that the restrictive covenants should have a defined geographic scope. However, a recent case from the Supreme Court of Georgia, North American Senior Benefits, LLC v. Wimmer, 2024 WL 4029937 (Ga. 2024), has eliminated any such requirement in Georgia. 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 Georgia Supreme Court issued its decision in North American Senior Benefits, LLC v. Wimmer, 2024 WL 4029937 (Ga. 2024), on September 4, 2024. Wimmer involved a non-solicitation agreement between an employer and two former employees that prohibited the former employees from soliciting any employees of the employer. The non-solicitation agreement had an effective period of two years after the end of employment, and was not limited to a geographic area. The employees left the employer and started a competing business. The employer then sued the employees for violation of the non-solicitation provision. The trial court granted to the employees a motion for judgment on the pleadings because the non-solicitation provision did not define a geographic area, and the Georgia Court of Appeals affirmed. However, the Georgia Supreme Court reversed. The Georgia Supreme Court held that a restrictive covenant does not require an express geographic area. It reasoned that the geographic area can be determined “from the facts and circumstances” of the case without being expressly stated in the restrictive covenant.

Florida law also enforces restrictive covenants only if they are reasonable in time, geographic area, and line of business. Fla. Stat. § 542.335. Yet, some courts have also treated Florida’s geographic area requirement with flexibility. For example, recently, in Hayes Medical Staffing, LLC v. Eichelberg, 2024 WL 670440 (S.D. Fla., Jan. 23, 2024), a court in the Southern District of Florida granted a permanent injunction that enforced a non-disclosure provision that did not contain a geographic area. In another example, in Office Depot v. Babb, 2020 WL 1306984 (S.D. Fla., March 19, 2020), the court enforced a broad restrictive covenant that included the entire United States. It is also notable that Florida has the “blue pencil” rule. The “blue pencil” rule allows courts to modify an overly broad restrictive covenant to make its scope reasonable. See Fla. Stat. § 542.335 (“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.”).

When preparing a restrictive covenant, it is important that businesses include specific provisions regarding the time limit, line of business, and geographic scope of the restrictive covenant. However, depending on the applicable state law, businesses might have flexibility in how they draft the restrictive covenant. For example, as shown by Wimmer and Florida law on the issue, they might be able to include a broad geographic area or even leave out the geographic area altogether. It is important to note that businesses should keep applicable state law in mind when preparing their restrictive covenants, as other states may not allow such flexibility.

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.