FORT LAUDERDALE BUSINESS LITIGATION: EQUITABLE TOLLING OF STATUTE OF LIMITATIONS FOR NON-COMPETE AGREEMENTS

The expiration of a non-compete period does not necessarily mean the covenant is unenforceable. A former employer may be able to enforce a non-compete against a former employee if the non-compete period expired and the non-compete period was tolled by the former employee’s violation of his restrictive covenant. Restrictive covenants, like non-compete agreements and non-solicitation agreements, must be reasonable in time as a general matter. Non-compete statutes often contain durational periods a restrictive covenant is considered reasonable and unreadable. The enforceable durations are usually based on the relationship between the obligor and obligee. In Florida, courts presume a restraint that is six months or less reasonable if the obligor is an employee and the obligee is an employer. Fla. Stat. § 542.335. The same statute dictates that a restrictive covenant between an employee and employer is presumptively unreasonable after two years. The presumptive enforceable duration increases if the obligor sold his business to the obligee. In that case, a court presumes a restrictive to be reasonable if is three years or less and unreasonable it if is more than seven years. Therefore, restrictive covenants usually contain a provision expressly stating their enforceable duration to ensure compliance with the reasonableness standard and statutory corresponding presumptions. 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.

But what happens when a former employer discovers his or her former employee breached the restrictive covenant (during the restrictive period) after the covenant lapses? Can the covenant still be enforced? The answer is – probably if your state applies the equitable tolling doctrine to restrictive covenants. This doctrine allows the obligor to enforce a restrictive covenant against the obligee after the restrictive period lapses if the obligee breached the covenant during the restrictive period. For example, precedent from Florida’s Fourth District Court of Appeal in Orkin Exterminating Co., Inc. v. Bailey, 550 So. 2d 563 (Fla. 4th DCA 1989), held that “Appellant is entitled to the full duration of the two-year restriction.” The rationale supporting equitable tolling is fairness. In this vein, Florida’s Fourth District Court of Appeal, in Anakarli Boutique, Inc. v. Ortiz, 152 So. 3d 107, 109 (Fla. 4th DCA 2014, explained that “[i]t would be stunningly unfair if the law held that a valid non-compete clause could be nullified because the non-compete period was devoured by the time it took to appeal an erroneous ruling on the interpretation of the clause.” The obligor is entitled to the benefit of what he or she bargained for under the contract, i.e., a prohibition against certain competitive conduct for a limited duration. Capelouto v. Orkin Exterminating Co. of Fla., Inc., 183 So. 2d 532, 534 (Fla. 1966) (“Inasmuch as the appellant had been in competition with the appellee continuously since his resignation, the chancellor must have determined that this was the only way to give the appellee its two competition-free years.”).

All states do not permit equitable tolling because courts are generally prohibited from rewriting private contracts. See Coffee Sys. of Atlanta v. Fox, 227 Ga. 602, 602, 182 S.E.2d 109 (1971) (“The litigation did not toll the one year period so as to provide additional time for enjoining the employe [sic] [because s]uch an extension would in effect rewrite the one year feature of the agreement. Courts do not make contracts for the parties.”). In these states, it is important to include a tolling provision inside the contract. Including this provision could allow a former employer to toll a restrictive covenant post violation even if the state’s common law does not allow for equitable tolling because the parties expressly bargained for tolling. See Gaylord Broad. Co. v. Cosmos Broad. Corp., 746 F.2d 251 (5th Cir. 1984) (“The parties may contractually provide for the tolling of the noncompetition period, if an employee breaches a covenant not to compete and the resulting civil proceedings to enforce the covenant consume more time than the period of the covenant itself.”).

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.