MIAMI BUSINESS LITIGATION: ILLEGAL CONDUCT AND RESTRICTIVE COVENANTS (PART I)

Former employees who are accused of breaching their noncompete agreements with their former employer sometimes try to claim that the former employer engaged in illegal conduct, and thus, a noncompete agreement cannot be enforced. While there are certain types of unlawful conduct which a court may cite to justify the denial of request for a temporary injunction, the range of illegal conduct which would justify such a denial is very narrow. Most allegations of illegal conduct will not influence whether a restrictive covenant should be enforced, even if the allegations are true. This article is the first of a two-part series. This article addresses contracts which are unenforceable because they are unlawful, while the second article addresses allegations of unlawful activity within the context of a noncompete agreement. Peter Mavrick is a Miami business litigation lawyer, and also represents clients in business litigation in Fort Lauderdale, Boca Raton, and Palm Beach. The Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, employment litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

Often, parties defending against business litigation will use everything at their disposal to influence their opponent into giving up. This can include making allegations of illegal conduct to argue that a noncompete agreement is unenforceable. Generally, Florida companies may enforce their contracts regardless if they have also performed an “illegal” action.

A contract which is itself illegal, however, is usually unenforceable. “[A] party generally may not seek to enforce an illegal contract.” P.C.B. P’ship v. City of Largo, 549 So. 2d 738 (Fla. 2d DCA 1989); Harris v. Gonzalez, 789 So. 2d 405 (Fla. 4th DCA 2001) (“A contract which violates a provision of the constitution or a statute is void and illegal, and, will not be enforced in our courts”).

This principle is founded upon public policy; that is, the objection which avoids the illegal contract comes from the public at large who demand that there can be no legal remedy for that which is itself illegal. Indeed, there rests upon the courts the affirmative duty of refusing to sustain that which by the valid laws of the state, statutory or organic, has been declared repugnant to public policy.

Gonzalez v. Trujillo, 179 So. 2d 896 (Fla. 3d DCA 1965).

Often, the source of the illegality of a contract arises from a party’s lack of capacity. For example, a person who has committed a felony within the past 5 years cannot own a liquor license. § 562.13, Florida Statutes. Consequently, a contract conveying an ownership interest in a restaurant or bar is unenforceable because it is illegal. Katz v. Woltin, 765 So.2d 279 (Fla. 4th DCA 2000) (refusing to enforce a transfer of an interest in an establishment that sells liquor to a former felon); Duncan v. Kasim, Inc., 810 So. 2d 968, 970 (Fla. 5th DCA 2002) (same). Similarly, referral fees are unlawful when they are for medical services. Consequently, a provider of referrals for medical services in exchange for compensation cannot be enforced. Harris v. Gonzalez, 789 So. 2d 405 (Fla. 4th DCA 2001) (refusing to enforce medical referral fees as contained in a contract).

Courts in business litigation will usually attempt to enforce a contract if it is possible, even if it has illegal components. Courts will sometimes enforce contracts that have illegal terms when those illegal terms are severable from the rest of the contract. Title & Tr. Co. of Florida v. Parker, 468 So. 2d 520 (Fla. 1st DCA 1985) (“Where a contract contains both legal and illegal terms and enforcement of the illegal terms can be refused without nullifying the contract’s essential purpose, courts will give effect to those valid portions and ignore the illegal terms”); New Products Corp. v. City of N. Miami, 241 So. 2d 451 (Fla. 3d DCA 1970) (enforcing the remainder of a contract to purchase a property which contained an illegal term); Title & Tr. Co. of Florida v. Parker, 468 So. 2d 520 (Fla. 1st DCA 1985) (refusing to enforce the usurious interest rates in a contract, but nevertheless enforcing the lawful interest under the contract).

Additionally, an “agreement which cannot be performed without violating such a constitutional or statutory provision, is illegal and void.” Schaal v. Race, 135 So. 2d 252 (Fla. 2d DCA 1961). This principle does not apply if it is possible, but unlikely, to perform the action legally. For example, a contract to steal the Mona Lisa would be illegal and unenforceable. However, a contract to acquire the Mona Lisa might be enforceable, even though the likelihood of a person acquiring the Mona Lisa legitimately from the Louvre is nearly zero.

Courts will not enforce contracts which are unlawful, however, courts will attempt to enforce contracts by either severing the illegal terms or construing its terms in a manner which would make the contract lawful. As a result, there is no basis for the premise that illegal activity can somehow negate the enforcement of a contract. Instead, the terms of the contract itself must be unlawful for a court to refuse to enforce it. The next article in this two-part series will address allegations of unlawful conduct in the context of restrictive covenants. Peter Mavrick is a Miami-Dade business litigation attorney who also practices business litigation in Fort Lauderdale and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.