FLORIDA NON-COMPETE CONTRACTS MAY NOT BIND SUCCESSOR COMPANIES UNLESS THE AGREEMENT IS ASSIGNABLE

When businesses are sold, the non-compete agreements the seller may have entered with its employees are likely to be assumed by the new owner. Non-compete contracts, however, do not automatically vest in favor of the new owner of the business. Section 542.335(f)(2) of the Florida Statutes permits enforcement of non-competition agreements by an assignee or successor to a party to the contract. The restrictive covenant must expressly authorize enforcement by a party’s assignee or successor. Peter Mavrick is an experienced non-compete litigation attorney.

In Marx v. Clear Channel Broadcasting, Inc., 887 So.2d 405 (Fla. 4th DCA 2004), John Cole (“Cole”) a prominent radio personality entered an employment contract with Fairbanks, the corporation that owned the radio station. The employment contract barred Cole from competing against the Fairbanks for a certain period after his employment ended. The non-compete covenant also stated that the rights and liabilities of the parties were not assignable.

Fairbanks later sold the radio station to Clear Channel Broadcasting, Inc. (“Clear Channel”), who then terminated Cole’s employment. Cole thereafter sued Clear Channel for unjustifiably interfering with his prospective advantage to work for a different radio station. The trial court granted Clear Channel’s motion for summary judgment and held that the non-assignability clause of the non-compete covenant was ambiguous and therefore unenforceable. The trial court concluded that Clear Channel was justified in interfering with Cole’s prospective opportunity to work for a competitor based on the non-compete covenant. Cole appealed the trial court’s decision.

The appellate court reversed because it disagreed with the trial court’s conclusion that the non-assignability clause was ambiguous. The contract provision pertaining to assignability of the contract stated in pertinent part:

The provisions of this agreement shall be binding upon and inure to the benefit of the parties hereto, COLE’s heirs and personal representatives, and the successors and assigns of [Fairbanks]. The foregoing notwithstanding, however, upon the sale of all or substantially all the assets, business and goodwill of [Fairbanks], or upon the merger or consolidation of the [Fairbanks] with another corporation, the Agreement shall bind and inure to the benefit of COLE. No party, however, may assign its rights or obligations under this Agreement.

“Contractual wording must be read to have the plain meaning of the words used.” Marx v. Clear Channel Broadcasting, Inc. supra. The appellate court held that the three sentences of this provision must be read sequentially to give the words their plain meaning. The first sentence stated that the agreement bound the heirs and successors of both parties. The second sentence “displaced” the binding effect of the first sentence. The second sentence stated that in the event of the sale of Fairbanks, only Cole could have benefited from and was bound by the agreement. The third sentence unambiguously stated that no rights under the contract may be assigned.

The appellate court held that the clear import of this provision was that upon the sale of the business, the non-competition clause became personal between Fairbanks and Cole and could not be assigned. Marx v. Clear Channel Broadcasting, Inc. stated that the general rule for interpretation of non-competition agreements is that they will not be construed to extend beyond their proper import or further than the contract wording requires. Clear Channel, therefore, could not enforce the non-compete covenant. Cole’s heirs and successors could only enforce rights arising from performance previously completed and therefore entirely vested. In other words, the only contractual rights Cole’s heirs could enforce would have been Cole’s rights for unpaid wages or damages for wrongful termination or termination for discriminatory reasons.

Clear Channel contended that it justifiably interfered with Cole’s right to employment based on its good faith belief that the contract was ambiguous and did not mean what it said. The appellate court rejected this argument because Clear Channel ignored the plain meaning of the non-assignability clause in the employment agreement. The appellate court explained that, “[a]s a general proposition we do not think one may base a defense of good faith to a claim of interfering with prospective advantage on such a circumstance.” Marx v. Clear Channel Broadcasting, Inc. supra. Peter Mavrick practices non-compete litigation throughout Florida, including cases in Broward, Miami-Dade, and Palm Beach Counties. This article does not serve as a substitute for legal advice tailored to a particular situation.