FORT LAUDERDALE BUSINESS LITIGATION: SALE OF BUSINESS THAT INCLUDES A NON-COMPETE COVENANT

Under Florida law, courts evaluate the enforceability of non-compete agreements based on Florida Statutes Section 542.335 as well as case law interpreting this statute. Under Section 542.335(1)(b), Florida Statutes, to establish that the contract restricting competition is itself lawful and enforceable, a party must simply “plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.” Once the party, which is typically a business, has established that the restraint is reasonably necessary to protect the legitimate business interest, the burden shifts to party opposing enforcement of the contract to establish that it is overbroad or otherwise not reasonably necessary. Balasco v. Gulf Auto Holding, Inc., 707 So.2d 858 (Fla. 2d DCA 1998). Florida law accords substantially more deference to the scope and duration of a non-compete agreement in the context of sale of a business or its asserts, as distinct from a non-compete agreement solely concerning an employment relationship. 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.

For example, in Avalon Legal Information Services, Inc. v. Keating, 110 So.3d 75 (Fla. 5th DCA 2013), Florida’s Fifth District Court of Appeal decided the proper scope of a non-compete/non-solicitation covenant arising from the purchase of a civil service of process consulting business from a paralegal that sold the business. The seller of the business (the paralegal) argued to the court that the non-compete/non-solicitation agreement did not protect legitimate business interests in “substantial relationships with existing and prospective clients” and “client goodwill.” The seller argued there were no “substantial relationships” as part of the business sale because the seller “enjoyed long-standing relationships” with the buyer’s clients. The appellate court was unpersuaded and ruled against the seller of the business, stating in pertinent part that the seller’s “argument ignores the fact that Keating paid Schneider $200,000 for the consulting business, which included Schneider’s client relationships and goodwill. Because the purchaser of the assets and goodwill of a business has a legitimate business interest in preventing the seller from servicing former clients, the trial court did not err in finding the non-compete/non-solicitation covenant was supported by a legitimate business interest.”

Although the Avalon decision determined the restrictive covenant was enforceable, the appellate court also determined that the trial court’s injunction was overbroad. “[T]he restrictive covenant prohibits Avalon from competing for and soliciting Keating’s clients. The court’s order is overly broad to the extent it enjoined Avalon and Schneider from competing for ‘any sheriffs in Florida’ in the area of civil service consulting, irrespective of whether they were a client of Keating. The trial court should modify the injunction allow Avalon and Schneider to compete for the remaining sheriffs’ offices with which Keating shares no substantial relationship.”

Whether the non-compete agreement occurs in the context of a sale of a business or instead an employer-employee relationship, the business can enforce the restrictive covenant by means of an injunction as well as seek damages. The most common method of enforcement is to seek an injunction, i.e., a court order prohibiting violation of the restrictive covenant. An injunction is usually the fastest and most practical approach. As Florida’s Third District Court of Appeal explained in Reliance Wholesale, Inc. v. Godfrey, 51 So.3d 561 (Fla. 3d DCA 2010), “although a trial court may award damages from breach of an employee’s agreement not to compete, ‘the normal remedy is to grant an injunction. This is so because of the inherently difficult, although not impossible, task of determining just what damage actually is caused by the employee’s breach of the agreement.'”

Peter Mavrick is a Fort Lauderdale business litigation attorney, 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.