MIAMI BUSINESS LITIGATION: REMEDIES FOR BREACH OF NON-COMPETE AGREEMENT

In Florida, an injunction is the generally favored remedy in cases of breach of a non-compete agreement. The Supreme Court of Florida in Miller Mechanical, Inc. v. Ruth, 300 So.2d 11 (Fla. 1974), explained that in cases of breach of a restrictive covenant, “[t]he Court may award damages for breach of contract but 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.” In its Miller Mechanical decision, the Supreme Court reversed the trial court’s refusal to enjoin the defendant, stating in pertinent part: “The trial court in this case determined that part of the contract was unreasonable, refused to enjoin the defendant and awarded only nominal damages because the plaintiff had been unable to prove damages. It is precisely because damages are so difficult to show that injunctive relief becomes a favored remedy. The trial court should have determined what length of time would have been reasonable under all of the circumstances and granted an injunction for that period of time.” 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.

Although injunctions are the typical remedy in non-compete litigation, parties may recover damages with sufficient proof. Generally, the aggrieved party in a breach of a noncompetition agreement case seeks lost profits as the measure of damages. Lost profits, however, are not the only recoverable damages. In Camel Investments, Inc. v. Webber, 468 So.2d 340 (Fla. 1st DCA 1985), Florida’s First District Court of Appeal stated that the measure of damages is “the actual damages suffered as a result of the breach[.]” Under Florida law, “[t]here are two generally recognized methods of proving lost profits: (1) the before and after theory and (2) the yardstick test.” G.M. Brod & Co., Inc. v. U.S. Home Corp., 759 F.2d 1526 (11th Cir. 1985). Florida’s Second District Court of Appeal in 4 Corners Insurance, Inc. v. Sun Publications of Florida, Inc., 5 So.3d 780 (Fla. 2d DCA 2009), explained that “[t]he yardstick test is generally used when a business has not been established long enough to compile an earnings record that would sufficiently demonstrate lost profits. This test compares the profits of the business “‘that are closely comparable to the plaintiff’s.'” The yardstick test is often employed when the plaintiff “is driven out of business before he is able to compile an earnings record sufficient to allow estimation of profits.” By contrast, under the “before and after theory,” the Fifth Circuit in Lehrman v. Gulf Oil Corporation, 500 F.2d 659 (5th Cir. 1974), explained that the plaintiff needs to present proof that compares “the plaintiff’s profit record prior to the violation with that subsequent to it.” However, a plaintiff’s method of proof may not strictly adhere to either method. Relying on United States Supreme Court precedent in Story Parchment Co. v. Paterson Parchment Co., 282 U.S. 555 (1931), Lehrman explained that, “while damages may not be determined by mere speculation or guess, it will be enough if the evidence show(s) the extent of the damages as a matter of just and reasonable inference, although the result be only approximate.”

As a practical matter, most businesses obtain injunctions to arrest continuous harm from breaches of restrictive covenants. Purchasers of businesses often pay a premium for the value inherent in barring the seller from competing against the newly purchased business. In cases where a business has been purchased and the seller is breaching its non-compete agreement, the seller might lose a substantial benefit of its bargain and therefore seek an injunction as well as recovery of damages.

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.