Articles Posted in Business Litigation

Under Florida law, non-compete agreements between employers and employees are allowed when they comply with the requirements of Florida’s restrictive covenant statute, Section 542.335, Florida Statutes.  For years, Florida law has allowed non-compete agreements to protect apparent “legitimate business interests” referenced in Section 542.335(1)(b), such as, for example, protecting an employer’s interests in retaining trade secrets, goodwill with customers and referral sources, and investments in extraordinary or specialized employee training.  However, much of Florida’s restrictive covenant statute would be effectively rescinded if a new rule proposed by the Federal Trade Commission (FTC) becomes effective.  The FTC proposed rule would bar non-compete agreements with employees, including agreements which are not labeled as a “non-compete agreement,” but have the effect of barring an employee’s competition against his or her employer.  The proposed FTC rule is set forth in a new Subchapter J, consisting of Part 910 to Chapter I in Title 16 of the Code of Federal Regulations. The proposed FTC rule has not become law at this point, and is subject to a comment period before being promulgated.  In addition, the legal viability of the proposed FTC rule will likely be tested in state and federal courts.  The courts will make the final decision regarding whether the final FTC rule is enforceable, or the extent to which it is enforceable.  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.

The proposed FTC rule defines a “non-compete clause” as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”  The proposed rule recognizes that businesses sometimes have used contractual provisions that do not explicitly bar competion, but nevertheless have the effect of barring competition.   The FTC proposed rule refers to such clauses as “de facto” non-compete contractual clauses.  The proposed FTC rule sets forth a “functional test” to assess whether a contractual term operates as a prohibited, de facto non-compete clause:

“(2) Functional test for whether a contractual term is a non-compete clause. The term non-compete clause includes a contractual term that is a de facto non-compete clause because it has the effect of prohibiting the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer. For example, the following types of contractual terms, among others, may be de facto non-compete clauses:

Most litigation over restrictive covenants are resolved at the conclusion of the temporary injunction hearing.  At that stage, the trial judge has made a decision whether the plaintiff is substantially likely to succeed on the merits of the case.  The parties usually are motivated to settle the case at that point.  However, in some cases a party seeks to recover damages at a trial on the merits.  This sometimes happens in cases where a party has incurred large losses and seeks to collect damages arising from the defendant’s breach of contract.  Florida law recognizes that “[t]he measure of damages for a breach of a non-competition agreement is the actual damages suffered as a result of the breach, which is generally loss of profits.” Camel Invs., Inc. v. Webber, 468 So. 2d 340 (Fla. 1st DCA 1985) (citing 54 Am.Jur.2d, Monopolies, section 579 (1971)).  Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, 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 law, and other legal disputes in federal and state courts and in arbitration.

“Generally, the aggrieved party in a breach of noncompetition agreement case seeks lost profits as the measure of damages.” Moon v. Med. Tech. Assocs., Inc., No. 8:13-CV-02782-EAK, 2015 WL 1227499 (M.D. Fla. Mar. 17, 2015) (citing Camel Investments, Inc. v. Webber, 468 So.2d at 342). “Lost profits, however, are not the only recoverable damages; the measure of damages is ‘the actual damages suffered as a result of the breach[.]’” Moon at *2 (citing Collier v. Crane Inspection and Certification Bureau, Inc., 382 So.2d 424 (Fla.Dist.Ct.App.1980)). “There are two generally recognized methods of proving lost profits: (1) the before and after theory and (2) the yardstick test.” G.M. Brod & Co., Inc. v. U.S. Home Corp., 759 F.2d 1526 (11th Cir.1985) (quoting Lehrman v. Gulf Oil Corporation, 500 F.2d 659 (5th Cir.1974)). “The before and after theory compares the plaintiff’s profit record prior to the violation with that subsequent to it.” Lehrman. 500 F.2d at 667. The yardstick test is often employed when a plaintiff “is driven out of business before he is able to compile an earnings record sufficient to allow estimation of profits.” Id.  Where a party was not driven out of business and has compiled record of earnings to allow an estimation of profits, the “before and after theory” of lost profits damages is applicable.

Under Florida law, to recover lost profits “[t]he party must prove that 1) the defendant’s action caused the damage and 2) there is some standard by which the amount of damages may be adequately determined. Katz Deli of Aventura, Inc. v. Waterways Plaza, LLC, 183 So. 3d 374 (Fla. 3d DCA 2013) (citing W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd., 545 So.2d 1348 (Fla.1989). “The projected profits cannot be mere speculation or conjecture, but the inability to prove a precise damages amount will not prevent a plaintiff from recovering so long as it is clear that some loss resulting from the defendant’s actions is certain. Id. (internal citations omitted). “Lost profits must be established with a reasonable degree of certainty and must be a natural consequence of the wrong.  Sostchin v. Doll Enterprises, Inc., 847 So. 2d 1123, 1128 (Fla. 3d DCA 2003).  The party seeking lost profit damages must “provide competent evidence sufficient to satisfy the mind of a prudent impartial person as to the amount of profits lost as a result” of the wrongdoing. Id. (citing North Dade Community Development Corp. v. Dinner’s Place, Inc., 827 So.2d 352 (Fla. 3d DCA 2002)).

Florida’s non-compete statute goes hand-in-hand with Florida law prohibiting trade secret misappropriation.  Under Florida’s statute governing non-compete agreements, a trade secret is a “legitimate business interest” to restrict employees and former employees from competing against their former employers.  Florida Statutes § 542.335(1)(b)(1) (legitimate business includes “trade secrets”).   A restrictive covenant in Florida is given an especially long period of enforcement when it is based on a trade secret.  In this regard, Florida Statutes § 542.335(1)(e), states that, “[i]n determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint of 5 years or less and shall presume unreasonable in time any restraint of more than 10 years.  All such presumptions shall be rebuttable presumptions.”  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.

A “trade secret” is defined by Florida Statutes § 688.002(4), to mean “information, including a formula, pattern, compilation, program, device, method, technique, or process that” (a) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (b) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. Some businesses hold trade secret processes that are used by key employees of business.  To establish a trade secret process, the business must prove the following: “(a) the process is a secret, (b) the extent to which the information is known outside of the owner’s business, (c) the extent to which it is known by employees and others involved in the owner’s business, (d) the extent of measures taken by the owner to guard the secrecy of the information, (e) the value of the information to the owner and to his competitors, (f) the amount of effort or money expended by the owner in developing the information, and (g) the ease or difficulty with which the information could be properly acquired or duplicated by others.”  Premier Lab Supply, Inc. v. Chemplex Industries, Inc., 10 So.3d 202 (Fla. 4th DCA 2009).

Businesses seeking to enforce and protect their trade secrets are sometimes met with the defense that the business did not have a “confidentiality agreement” with its employees.  Important precedent from Florida’s Third District Court of Appeal, in the seminal case Unistar v. Child, 415 So.2d 733 (Fla. 3d DCA 1982), held that “[t]he law will import into every contract of employment a prohibition against the use of a trade secret by the employee for his own benefit, to the detriment of his employer, if the secret was acquired by the employee in the course of his employment.”    The lack of any express agreement on the part of the employee not to disclose a trade secret generally is not significant. Florida’s Fourth District Court of Appeal in its Premier Lab Supply decision explained that “the lack of a confidentiality agreement does not necessarily defeat Chemplex’s argument that the machine is a trade secret.”  Under Florida law, a valid cause of action exists to protect an employer’s trade secrets from disclosure or use by an employee (or former employee) even when there is no express contract restraining the employee from disclosing or using such secrets.  Lee v. Cercoa, Inc., 433 So.2d 1 (Fla. 4th DCA 1983).    Where an employee acquires (during the course of his employment) a trade secret such as “a special technique or process developed by his employer, the employee is under a duty, even in the absence of an express contractual provision, not to disclose such skills, techniques, or processes in his new employment for his own or another’s benefit to the detriment of his previous employer.”  Id.