FLORIDA NON-COMPETE AGREEMENTS: ASSIGNMENT OF A NON-COMPETE AS PART OF A BUSINESS SALE

Florida law governing non-compete agreements imposes specific requirements for a contractual “assignment” provision to be considered valid. Florida Statutes Section 542.335(1)(f)(2) requires assignment of a non-compete provision to be expressly authorized by the contract in order to be enforced by an employer’s assignees or successors. Florida courts interpret the plain meaning of the wording of an assignment clause to determine whether the third-party’s rights to enforce the non-compete agreement are subsumed within the clause. Contractual assignment provisions are typical in the sale and purchase of business assets. A buyer of the assets of a business will typically demand a non-compete agreement restricting the seller or another key employee from competing in some limited way against the buyer of the business assets. Such a restrictive covenant is typically in tandem with a bargain for a higher selling price for the business assets. The parties to the asset sale transaction recognize that the non-compete agreement will enhance the likelihood of a successful and profitable business transition from seller to buyer. Accordingly, assignment clauses that allow the buyer to “stand in the shoes” of the seller of the assets regarding a non-compete agreement with a key employee are critical to buyer getting the benefit of the bargain. Peter Mavrick is a Fort Lauderdale, Palm Beach, and Miami non-compete attorney and business litigation attorney who has substantial experience with non-compete litigation, including injunction proceedings.

In Patel v. Boers, 68 So.3d 380 (Fla. 5th DCA 2011), David Boers, DDS (“Boers”) sold his dental practice to Yagnabala Patel, DDS (“Patel”), and assigned the Provider Agreement he entered with Thomas Cheng, DMD (“Cheng”). The Provider Agreement contained a non-compete covenant. Cheng continued to work for Patel for nearly one year after she purchased Boers’ dental practice. Cheng subsequently left Patel’s employment. Patel contended that Cheng committed numerous violations of the non-compete covenant. Patel filed a lawsuit against Cheng seeking, among other things, an injunction to enforce the non-compete provision.

Cheng filed a motion to dismiss the injunction claim, arguing that Patel lacked standing to enforce the restrictive covenant because the Provider Agreement did not comply with the requirements of Section 542.335(1)(f)(2), Florida Statutes. Section 542.335(1)(f)(2) provides in pertinent part:

The court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is a third-party beneficiary of such contract or is an assignee or successor to a party to such contract, provided…the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.

The trial court granted the motion to dismiss with prejudice. The trial court reasoned that the non-compete provision did not contain wording that expressly authorized enforcement by an assignee. The trial court held that non-compete provision could have been enforced by an assignee only if the requisite statutory wording had been included in the non-compete agreement. Patel immediately appealed.

The Provider Agreement contained a general assignment clause whereby Cheng and Boers “specifically agreed that the mutual and reciprocal covenants and agreements, rights and obligations contained in this Provider Agreement are assignable only by [Boers].” The bill of sale from the sale between Boers and Patel provided that Boers “does hereby sell … assign and convey unto Yagnabala K. Patel … all Seller’s right, title and interest in and to all of the Assets (as defined in the Attached Asset Purchase Agreement) …” An addendum to the Asset Purchase Agreement provided, in pertinent part, that “Seller agrees to transfer the professional employee contract (Provider Agreement) between Seller and Thomas Cheng….”

Patel v. Boers held that the assignment clause contained in the Provider Agreement was sufficient to constitute an express authorization of enforcement by an assignee as required by the statute. The appellate court reversed the dismissal and remanded the case back to the trial court.

Similarly Florida’s First District Court of Appeal in the case of DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928 (Fla. 1st DCA 2012), held that a formal assignment of the non-compete provision was not required to effect an assignment when the plain wording of the contract generally authorized the assignee to exercise the employer’s contractual rights. The employment agreement provided, in pertinent part, that “[Employer’s] rights and obligations under this Agreement shall inure to the benefit of … [Employer’s] assigns and successors.” The trial court had ruled that the non-compete agreement was unassignable based on one sentence in the contract that prohibited the employee from assigning his contractual obligations due to the personal nature of the services. The appellate court disagreed. Instead the appellate court in DePuy held that in “employment agreements, as with all contracts, courts must apply the ‘most commonly understood meaning with regard to the subject matter and circumstances of the contract.’” The appellate court held that the general assignment of the employer’s rights to assigns and successors was sufficient. Further, the appellate court held that the buyer and seller’s amendment to the agreement, which sold all intangible assets, clearly assigned the right to enforce the non-compete covenants.

Peter Mavrick is a Fort Lauderdale, Palm Beach, and Miami non-compete lawyer who has substantial experience with business litigation. This article does not serve as a substitute for legal advice tailored to a particular situation.