FORT LAUDERDALE NON-COMPETE AGREEMENTS: ORAL EXTENSION OF AGREEMENT DOES NOT SATISFY STATUTE OF FRAUDS

Pursuant to Section 542.335, Florida Statutes, a non-compete agreement must be in a writing signed by the party against whom enforcement is sought. Businesses often enter agreements with their employees for specified period with an option to renew. Courts have found that written agreements can be extended beyond their expiration dates when the parties agree to the extension and continue to conduct themselves in compliance with the agreement. An extension of the non-compete agreement, however, may still require a writing as a matter of law. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida. Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation and injunction proceedings, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Gray v. Prime Mgmt. Group, Inc., 912 So. 2d 711 (Fla. 4th DCA 2005), where Prime Management Group, Inc. (Prime) hired Douglas Gray (Gray) as the company president. Prime and Gray entered into an employment agreement which contained non-compete and nondisclosure covenants (Agreement). The non-compete covenant prohibited Gray from competing or soliciting business from Prime’s clients for a period of 18 months “following termination of this Agreement.” The Agreement was in effect for five-year period, unless terminated earlier pursuant to its terms, or extended by mutual agreement of Prime and Gray. After the five-year term expired, Gray continued to work for Prime for fifteen months. Prime and Gray were negotiating the terms of a new contract. Gray then resigned and started a competing management business called Pinnacle.

Prime filed a lawsuit against Gray for breach of the non-compete agreement and filed a motion for a temporary injunction against Gray. Gray contended that the non-compete agreement was not valid because the Agreement expired at the end of the five-year term. Prime contended that the non-compete covenant survived expiration of the Agreement’s explicit five-year term. The trial court granted Prime’s motion for temporary injunction finding that it was implied that Prime and Gray mutually assented to a new contract containing the same provisions as the original written contract. The trial court’s decision was based on case law holding that when an employment agreement expires by its own terms, and the parties continue to perform as before, it is implied that the parties mutually assented to a new contract containing the same terms as the original contract. The trial court Judge held that after the expiration of the five-year term, Gray and Prime conducted themselves as though neither the Agreement nor the non-compete expired. Gray immediately appealed.

It was undisputed that Gray continued working for Prime for fifteen months after the expiration of the contract. Under Section 725.01, Florida Statutes, i.e. the Statute of Frauds, “any agreement that is not to be performed within the space of one year from its making must be reduced to writing in order to be enforceable.” Gray v. Prime Mgmt. Group, Inc., supra. In other words, an oral agreement to work for a term longer than a year, must be in writing to be enforceable.

Gray contended that the Statute of Frauds precluded enforcement of the non-compete clause against him because he resigned fifteen months after expiration of the original written contract. Gray argued to the appellate court that the cases cited by the trial court Judge involved enforcement of one-year employment agreements, or one-year renewals, exempting them from the Statute of Frauds. Gray also contended that the contract provision allowing an extension of the Agreement “by mutual agreement of the parties hereto” did not specifically reference the non-compete clause. Gray further contended that the trial court erred by overlooking the “writing” requirement required by both Section 542.335, Florida Statutes, and the Statute of Frauds.

The appellate court agreed. The appellate court held that where a written employment contract expired and the employee continued working under an oral contract, a non-compete agreement that is part of the the original employment contract cannot always be enforced. A non-compete clause may be independent of the other clauses in the agreement, but that does not mean that the non-compete covenant necessarily survives expiration of the contract. Instead, the non-compete agreement must contain an express provision to that effect. In reaching its decision, the appellate court relied on precedent from Florida’s Third District Court of Appeal in Sanz v. R.T. Aerospace Corp., 650 So.2d 1057 (Fla. 3d DCA 1995), which had rejected an employer’s contention that the non-compete covenants of the written agreement survived the expiration of the three-year term of the agreement. Sanz further held that the employee’s continued performance after the expiration of the written agreement pursuant to an oral agreement could not serve to exempt the non-compete covenant from the Statute of Frauds.

Prime contended that there is no Statute of Frauds violation because of the Agreement’s wording states that the Agreement may be extended by the mutual agreement of the parties. The appellate court rejected this argument because the mutual agreement wording did not specifically refer to the non-compete clause. The appellate court therefore reversed the trial court’s order granting the temporary injunction because the non-compete agreement had expired and there was no valid extension.

Peter Mavrick is a Fort Lauderdale non-compete lawyer who also practices non-compete litigation in Palm Beach, Boca Raton, and Miami. This article does not serve as a substitute for legal advice tailored to a particular situation.