MIAMI NON-COMPETE AGREEMENTS: LEGITIMATE BUSINESS INTERESTS SUPPORTING RESTRICTIVE COVENANTS

In Florida business litigation, a non-compete restriction may not exist solely as a tool to eliminate competition or merely to prevent an employee from working with a competing employer in any capacity. Crom, LLC v. Preload, LLC, 380 F. Supp. 3d 1190 (N.D. Fla. 2019). When a breach-of-contract action is based upon enforcement of a restrictive covenant, the plaintiff must plead and prove specific elements to establish that the restrictive covenant is a valid restraint of trade. Rauch, Weaver, Norfleet, Kurtz & Co., Inc. v. AJP Pine Island Warehouses, Inc., 313 So. 3d 625 (Fla. 4th DCA 2021). “[T]he term ‘restrictive covenants’ includes all contractual restrictions upon competition, such as noncompetition/nonsolicitation agreements, confidentiality agreements, exclusive dealing agreements, and all other contractual restraints of trade.” Henao v. Prof’l Shoe Repair, Inc., 929 So. 2d 723 (Fla. 5th DCA 2006). Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation 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 law, and other legal disputes in federal and state courts and in arbitration.

“Section 542.335 contains a comprehensive framework for analyzing, evaluating and enforcing restrictive covenants in Florida based on an ‘unfair competition’ analysis.” Henao v. Prof’l Shoe Repair, Inc., 929 So. 2d 723 (Fla. 5th DCA 2006). Under Section 542.335, three requirements must be satisfied for a restrictive covenant to be enforceable: (1) the restrictive covenant must be “set forth in writing signed by the person against whom enforcement is sought”; (2) the party seeking to enforce the restrictive covenant “shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant”; and (3) the party seeking to enforce the 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.” § 542.335, Fla. Stat.

Any restrictive covenant that is not supported by a legitimate business interest is unlawful, void, and unenforceable. § 542.335, Fla. Stat. “[T]he determination of whether an activity qualifies as a protected legitimate business interest under [section 542.335] is inherently a factual injury, which is heavily industry – and context-specific.” White v. Mederi Caretenders Visiting Servs. of Se. Fla., LLC, 226 So. 3d 774 (Fla. 2017). “Section 542.335 provides a list of ‘legitimate business interests,’ but it specifically states that the list is not exclusive.” Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015). This list includes, but is not limited to the following: trade secrets; valuable confidential business or professional information that otherwise does not qualify as trade secrets; substantial relationships with specific or existing customers, patients, or clients; customer, patient, or client goodwill associated with an ongoing business or professional practice, a specific geographic location, or a specific marketing or trade area; and extraordinary or specialized training. § 542.335, Fla. Stat.

Some Florida courts have narrowly construed section 542.335 when analyzing whether a legitimate business interest exists to support a restrictive covenant, whereas others have not. For example, in University of Florida, Board of Trustees v. Sanal, 837 So. 2d 512 (Fla. 1st DCA 2003), the First District, in affirming the trial court’s determination that the university could not enforce a non-compete agreement with a former physician-employee, narrowly construed the “specific prospective patients” wording contained in section 542.335. The university had sought to prohibit the physician from treating all persons residing in the designated geographic area after his employment with the university ended. University of Florida, Board of Trustees v. Sanal, 837 So. 2d 512 (Fla. 1st DCA 2003). The First District, however, looked to the “clear and unambiguous” language of the phrase “specific prospective patients” in concluding that the statute limited the restrictive covenant to specific patients – not prospective patients. University of Florida, Board of Trustees v. Sanal, 837 So. 2d 512 (Fla. 1st DCA 2003). In Florida Hematology & Oncology v. Tummala, Florida’s Fifth District Court of Appeal extended the analysis in Sanal when it ruled that referral sources for prospective unidentified patients are not legitimate business interests under section 542.335 because the statute requires a “substantial relationship” with a “specific” prospective patient. 927 So. 2d 135 (Fla. 5th DCA 2006).

On the other hand, the Fourth District has disagreed that with the Fifth District’s holding that section 542.335 should be construed so narrowly as to exclude referral sources as a legitimate business interest. In Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015), the Fourth District explained that section 542.335 “clearly states that the legitimate business interests listed in the statute are not exclusive. This allows the court to examine the particular business plans, strategies, and relationships of a company in determining whether they qualify as a business interest worthy of protection.” Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015). The Fourth District held that relationships with specific referral sources are a legitimate business interest because the healthcare business “carefully cultivates these relationships over time and heavily depends upon them as a source of business.” Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015). All Florida courts agree, however, that protection of an employer from ordinary competition is not a legitimate business interest, and a covenant designed solely for that purpose will not be enforced. Evans v. Generic Solution Engineering, LLC, 178 So. 3d 114 (Fla. 5th DCA 2015).

Once the party seeking a temporary injunction to enforce its restrictive covenant proves a legitimate business interest, the party must then “plead and prove that the contractually specified restraint is necessary to protect the legitimate business interest or interests justifying the restriction.” § 542.335, Fla. Stat. If the party seeking enforcement can establish a prima facie case that the restriction is reasonably necessary, “the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.” § 542.335, Fla. Stat. Courts must construe restrictive covenants “in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement,” and without “any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract.” § 542.335, Fla. Stat.

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.