MIAMI BUSINESS LITIGATION: WHERE VIOLATIONS OF NON-COMPETE AGREEMENTS CAUSE DEMISE OF A BUSINESS

A former employee cannot avoid non-compete obligations by causing the demise of the business to whom he or she owes the obligation. Florida law requires the business that intends to enforce the restrictive covenant to establish a legitimate business interest justifying the restriction. Florida Statutes Section 542.335(c) states in pertinent part that, “[a] person seeking enforcement of a restrictive covenant…shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.” Peter Mavrick a Miami business litigation attorney, and represents clients in Fort Lauderdale, 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 litigation, and other legal disputes in federal and state courts and in arbitration.

These “legitimate interests” include trade secrets; valuable confidential business or professional information that otherwise does not qualify as trade secrets; substantial relationships with specific prospective or existing customers; extraordinary or specialized training; and customer goodwill associated with an ongoing business, trade name, trademark, service mark, “trade dress,” a specific geographic location, or a specific marketing area. Once a former employer satisfies his burden of establishing that the covenant is supported by the existence of one or more legitimate business interests, the party refusing to comply has the burden of demonstrating the restraint is “overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.”

Some former employees caught red-handed violating their non-compete agreements have tried to justify their actions by contending the court should not enforce a non-compete when the former employer’s business is no longer operational. See USI Ins. Services of Florida Inc. v. Pettineo, 987 So. 2d 763, 766 (Fla. 4th DCA 2008) (“Section 542.335, however, allows an enforcing party to establish prima facie the enforceability of the agreement itself, after which the party opposing enforcement can raise “as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant”). This argument can be effective when the business ended for reasons having nothing to do with the violations of the non-compete covenant. For example, the United States District Court for the Southern District of Florida, in Chen v. Cayman Arts, Inc., 2011 WL 3903158 (S.D. Fla. Sept. 6, 2011), refused to enforce a restrictive covenant because the plaintiff employer “has not suggested any reason that its purported trade secrets remain a legitimate business interest following [the plaintiff’s] dissolution.”). Similarly, in Wolf v. James G. Barrie, P.A., 858 So. 2d 1083 (Fla. 2d DCA 2003), Florida’s Second District Court of Appeal stated explained that enforcement of a restrictive covenant “requires that the employer must be engaged in the business that the covenant seeks to protect.”

Florida law, however, does not allow former employees from using their own unlawful competitive actions as a “shield” against enforcement of a restrictive covenant. Florida Statutes Section 542.335(g)(2) states that a court “[m]ay consider as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant only if such discontinuance of business is not the result of a violation of the restriction.” In other words, where the former employee’s actions caused the business to cease operations, the restrictive covenant in necessarily enforceable against the employee. Situations where businesses have failed due to violations of non-compete agreements have occurred, for example, where a “key employee” replicated the business and diverted its customers and goodwill.

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