FORT LAUDERDALE BUSINESS LITIGATION: ASSIGNING NON-COMPETE PROVISIONS

A business purchaser often requires the seller to sign a non-compete provision as part of the sale. Purchasers usually require non-compete provisions to prevent the business seller from starting a new rival business that deprives the purchaser of the value of the assert he or she purchased. The same logic applies to the business’s employees. The business purchaser generally wants to discourage the business’s employee’s from leaving the business to start a new rival business. However, it is unlikely the purchaser can require all employees of the business to execute non-compete agreements before the purchase is consummated. The purchaser must, therefore, rely on non-compete agreements the business already procured from its employees (assuming the business did so). But enforcing these provisions is not always easy for the business purchaser if he or she did not directly step into the shoes of the seller. The Fort Lauderdale 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.

Florida’s non-compete statute grants employers and employees the right to freely contract for covenants not to compete. Fla. Stat. § 542.335. The statute contains strict prerequisites to enforcing non-compete provisions. For example, the provision must be in writing, reasonable in geographic scope, reasonable in time, and protect a legitimate business interest. Fla. Stat. 542.335. Despite these explicit prerequisites, the statute is curiously silent on whether a non-compete agreement can be assigned to a new employer like the purchaser of a business.

Florida law does not have a great deal of authority on the issue. Therefore, it has looked to other jurisdictions for guidance. In Mail–Well Envelope Co. v. Saley, 497 P.2d 364 (Or. 1972), the Supreme Court of Oregon held that where an employment agreement incorporating a noncompetition provision specified that “the provisions of this contract shall extend to the successors, and assigns of the Employer,” the agreement was enforceable by the successor corporation who was assigned the contract. Similarly, in Torrington Creamery v. Davenport, 12 A.2d 780 (Conn. 1940), the purchaser of a milk distribution business sought to enforce a noncompetition covenant in an employment agreement executed by an employee and the former owner of the business. The court determined the covenant was an assignable asset of the business and, therefore, enforceable by the purchaser of the business. And in Saliterman v. Finney, 361 N.W.2d 175 (Minn. App.1985), the court held that “a covenant not to compete in an employment agreement is assignable ancillary to the sale of a business to protect the goodwill of that business.” The Saliterman court reasoned arrived at its holding because the contract language demonstrated “the parties contemplated and assented to the future assignments of their respective interests.”

Florida followed suit. In Pino v. Spanish Broad. Sys. of Florida, Inc., 564 So. 2d 186 (Fla. 3d DCA 1990) the court allowed the purchaser of a business to enforce the non-compete provision even through the employee did not execute the non-compete in favor of the purchaser. The court held that the contract containing the non-compete provision was enforceable because it also included a provision permitting assignment. The Pino decision was clarified about thirteen years later by Florida’s Supreme Court, which expressly held the assigned non-compete provisions are enforceable only when the employee consents to assignment. Corp. Exp. Office Products, Inc. v. Phillips, 847 So. 2d 406 (Fla. 2003). Therefore, the purchaser of a business should review the non-compete contracts between the seller and its employees to determine whether those contracts are assignable.

The Fort Lauderdale 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.