Non-Compete Litigation (Part 2)

Challenges to Non-Compete Injunctions by Showing There is Neither Irreparable Harm nor Inadequate Remedies at Law

However, even if a plaintiff establishes it is likely to succeed at trial that it has a valid non-compete contract that was breached, challenges are often made as to the issues of irreparable harm and inadequate remedies at law.

Florida’s non-compete statute states in pertinent part that “[t]he violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant.” § 542.335(1)(j). To rebut the presumption, the defendant must establish “the absence of injury,” as a Florida appellate court explained in DePuy Orthopaedics, Inc. v. Waxman, 95 So.3d 928, 939 (Fla. 1 ^st DCA 2012). Lack of injury is not always the same as absence of monetary loss. The Supreme Court of Florida in Miller Mech., Inc. v. Ruth, 300 So.2d 11, 12 (Fla. 1974), explained that in cases involving a violation of a covenant not to compete, “the normal remedy is to grant an injunction … 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.”

Sometimes plaintiffs can establish lost business, and then defendants argue that this proves there is an “adequate remedy at law” and therefore there should be no injunction. However, courts have held that there can still be an injunction even when monetary damages are ascertainable. Courts have explained that plaintiffs do not have an adequate remedy at law for the irreparable harm they suffered and may continue to suffer where monetary damages are difficult to prove with any certainty or, even if provable, would not adequately compensate for all aspects of the violation of the covenant not to compete. In Variable Annuity Life Ins. Co. v. Hausinger, 927 So.2d 243, 245 (Fla. 2d DCA 2006), the appellate court reversed a trial judge’s denial of a temporary injunction even though “monetary damages were ascertainable to some clients that ‘the former employee] admittedly solicited.” The appellate court explained that “the harm presumed under the [non-compete] statute includes the potential damages to [the plaintiff’s] longstanding relationships with its customers and the protection of confidential client information.” By contrast, the Fourth District Court of Appeal reached a much different result in First Miami Securities, Inc. v. Bell, 758 So.2d 1229 (Fla. 4 ^th DCA 2000). There the trial court denied the former employer’s motion for a temporary injunction because it was unable to establish a presumption of irreparable harm as actual damages could be proven. The appellate court affirmed the trial court’s decision to deny the temporary injunction. Peter Mavrick is a Fort Lauderdale and Miami non-compete attorney.

Whether a Noncompetition Agreement can be Enforced by Injunction When the Agreement Contains a Liquidated Damages Clause

Some non-compete contracts have liquidated damages clauses, and the question arises whether the existence of liquidated damages as a remedy precludes issuance of an injunction to enforce a non-compete provision in the same contract. In such cases, courts generally have determined that enforceability via injunctive relief will depend on whether the contract stipulates a particular amount of money as a fixed price for nonperformance of the contract, i.e., an established amount of money a party may pay to relieve itself of its other contractual obligations. Section 361 of the Restatment (Second) of Contracts addresses this issue and provides in pertinent part that “[s]pecific performance or an injunction may be granted to enforce a duty even though there is a provision for liquidated damages for breach of that duty.” The rationale is that:

A contract provision for payment of a sum of money as damages may not afford an adequate remedy even though it is valid as one for liquidated damages and not a penalty … Merely by providing for liquidated damages, the parties are not taken to have fixed a price to be paid for the privilege not to perform. The same uncertainty as to the loss caused that argues for the enforceability of the provision may also argue for the inadequacy of the remedy that it provides. Such a provision does not, therefore, preclude the granting of specific performance or an injunction if that relief would otherwise be granted.

By contrast, where a contract provides for the payment of a particular price as a true alternative performance, “specific performance or an injunction may properly be granted on condition that the alternative performance is not forthcoming.” However, if the breaching party “chooses to pay the price,” then courts generally will not issue an injunction.

Whether Public Interest Factors Favor Imposition of an Injunction

A court must consider the public interests when ruling on an injunction motion. Tom v. Russ, 752 So.2d 1250 (remanding the injunction because the trial court failed to consider the public interests); Taylor v. Searcy Denney Scarola Barnhart & Shipley, P.A., 651 So.2d 97 (Fla. 4th DCA 1994) (requiring courts to weigh the “beneficial results [of an injunction] on the one hand with the possible detrimental results [of an injunction] on the other”).

Sometimes challenges are made to the lack of public interests supporting an injunction. Under Florida’s non-compete statute, the existence of a statutory “legitimate business interest” usually will satisfy the public interest prong to obtain a temporary injunction. In Atomic Tattoos, LLC v. Morgan, 45 So.3d 63, 66 (Fla. 2d DCA 2010), the court explained that “[a] finding that a covenant ‘protects a legitimate business interest is also important to public interest considerations.’” However, a public interest can override enforcement of a non-compete agreement. Public interest considerations can preclude an injunction when a public interest outweighs the private interest. For example, Florida’s Third District Court of Appeal explained in Frederiks v. Blake, 382 So.2d 368 (Fla. 3d DCA 1980), that an injunction will not be granted where it will “produce an injury to the public that outweighs the individual right of the complainant to have the relief sought.” Similarly, Florida’s Fifth District Court of Appeal in DiChristopher v. Board of County Commisioners, 908 So.2d 492 (Fla. 5th DCA 2005), refused to issue an injunction where “the need for mosquito control clearly outweigh[ed] DiChristopher’s private interest in his property.” Under Florida’s non-compete statute, § 542.223(1)(i), a court must specify the public policy requirements that “substantially outweigh the need to protect the legitimate business interest or interests established by the person seeking enforcement of the restraint.” An example might be a patient’s right to see the physician of his or her choosing irrespective of the existence of a non-compete covenant because there may be serious medical issues at stake that could affect other public policies concerning patient health.

Tortious Interference Claims in the Context of Florida Non-Compete Contracts

Under Florida law, courts generally will not allow lawsuits asserting tortious interference with a contract that is terminable at will. Courts reason that there is only an expectation that the relationship will continue and this is not sufficient for a tortious interference claim. See, for example, Ferris v. South Fla. Stadium Corp., 926 So.2d 399 (Fla. 3d DCA 2006) (generally there is no claim for tortious interference with an at-will contract). However, Florida law recognizes an exception in the context of a former employer who wishes to bring a lawsuit against a new employer for tortious interference with a non-compete contract between the former employer and its employee, even if the employee was terminable at-will. Under Florida law, continued employment constitutes sufficient consideration for a binding non-compete contract between an employer and an at-will employee.

Florida courts also have held that a new employer can be subject to an injunction enforcing a non-compete contract against an employee who previously signed a non-compete contract with a former employer. Florida courts have held that it does not matter that the new employer never was a party to the non-compete contract.

This is what happened in Temporarily Yours-Temporary Help Services, Inc. v. Manpower, Inc. , 377 So.2d 825 (Fla. 1^st DCA 1979), where the employer, Manpower, Inc., sought an injunction against former employee, Edward Jones, to prevent him from competing with Manpower for a 2-year period within a 200-mile radius as per the non-compete. Shortly after Jones was fired by Manpower, he helped organize a corporation, Temporarily Yours-Temporary Help Services, Inc., in direct competition with Manpower. He solicited Manpower’s clients, some of whom began to do business with Jones. Consequently, Manpower sought recovery against Jones and Temporarily Yours and the trial court entered the injunction against same.

The non-compete in part stated that Jones would not “…directly or indirectly, on your own account or as agent, stockholder, employer, employee or otherwise, engage in competition in a business similar to that of Company or division to which you are assigned by virtue of this agreement…”. To be entitled to an injunction when a covenant not to compete has been violated, the plaintiff need only prove the existence of the contract, intentional and material breach of the contract and no adequate remedy other than injunctive relief. Manpower was able to prove that a contract between it and Jones existed and that Jones’ breach of the non-compete was intentional and harmful to its business interests and the only remedy available to it was an injunction. The trial court agreed. On appeal, Jones argued the trial court erred as to the injunction against Temporarily Yours because it was not a party to the non-compete and Jones did not own the corporation or have any proprietary interest therein. The appellate court disagreed with Jones and affirmed the trial court judgement. It found that the injunction not only bound Jones, but also those persons or entities associated with him in interest, in privity with him, represented by him or subject to his control. Jones admitted that he was president of Temporarily Yours, and the only operating officer. While he was not a stockholder, he could purchase stock in the corporation. Under these circumstances, the appellate court held the injunction was properly issued against Jones and Temporarily Yours because the corporation existed for the purpose of aiding and assisting Jones in violating his covenant not to compete.

While Temporarily Yours is an older case (1979), more recent court holdings maintain the court’s stance in Temporarily Yours. In Dad’s Properties, Inc. v. Lucas , 545 So.2d 926 (Fla. 2^nd DCA 1989), the facts were very similar to that of Temporarily Yours. Al Lucas (seller) entered into an agreement with Dad’s Properties (buyer), which included a non-compete provision whereby, “[f]or a period of five (5) years after the date of closing, within a radius of fifty (50) miles, the sellers agree that they will not engage in the live adult entertainment business, either directly or indirectly, as an individual, partner, employee, stockholder, or consultant.” A year later, Susan Lucas, wife of Al Lucas, formed Martus, Inc., which began operating a business, Fountain Blue, which competed directly with Dad’s Properties. Mrs. Lucas was the sole shareholder, director and officer of Martus, Inc. and Mr. Lucas worked was the manager of Fountain Blue and exerted considerable control over the design and operation of Fountain Blue and he and Mrs. Lucas solicited employees of Dad’s Properties. Dad’s Properties filed an action against the Lucas’ and Martus seeking to enjoin them from breaching the non-compete. The Lucas’ asserted that Mrs. Lucas and Martus were not bound by the same because only the parties to the covenant were restricted from competing with Dad’s Properties. However, Florida’s Second District Court of Appeal held otherwise and stated, “individuals and entities may be enjoined from aiding and abetting a covenantor in violating a covenant not to compete” and “an injunction not only binds the parties but also those identified with them in interest, in privity with them, represented by them or subject to their control.” The appellate court therefore upheld the injunction.

Florida Non-Compete Defense: No Liability When Former Employee was “Predisposed” to Breach His Promise not to Compete

It is common in Florida non-compete lawsuits that a former employer will sue the employee who signed the non-compete contract as well as the employer who hired the former employee. This often happens even though the new employer never signed the non-compete contract. The basis for such lawsuits against the new employer is what is called “tortious interference with contractual relationship.” Under Florida law this simply means that the new employer is being accused of intentionally interfering with the former employer’s non-compete contract with its former employee. These “tortious interference” claims are common in Fort Lauderdale, Miami, and Palm Beach non-compete cases.

Courts require that the former employer prove four elements for a tortious interference claim: (1) existence of a business relationship; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship with the defendant; and (4) damages to the plaintiff as a result of breach of the relationship.

Successful defense of such claims often attack all elements of the claims. Frequently the new employer does not even know there was a non-compete before hiring the new employee and never “intentionally” or “unjustifiably” interfered with the non-compete contract. Usually damages are difficult for the former employer to prove.

Former employers often bring these tortious interference claims against the new employer to impose maximum leverage against the former employee. In a nutshell, the former employer is trying to get the new employer to fire the employee, i.e., terminate the employment relationship so that the former employee suffers economically. Often, the former employer tries to tortiously interfere with the new employer’s business relationship with the former employee.

Florida recognizes the unusual defense of “predisposition” of the former employee to breach the non-compete. When the new employer proves such “predisposition,” there can be no valid claim of tortious interference.

For example, in the case of Fiberglass Coatings, Inc. v. Interstate Chemical, Inc., a Florida trial court judge ruled in favor of the new employer and dismissed the tortious interference claim brought by the former employer based on hiring the employee who had a non-compete contract. The noncompete covenant that was the genesis of this lawsuit prohibited Robert Hutchens, FCI’s former employee, from being employed by or acting as an agent of any business which competed with FCI within the state of Florida for a year after his employment with FCI ended. Mr. Hutchens left FCI’s employ in March 2002. Within a few weeks, he began working for Polymeric, a competitor of FCI, but stayed there only a short time. A few months later, Interstate, which was a competitor of FCI, hired him as a salesman. Thereafter FCI sued Mr. Hutchens for breach of the non-compete contract and also sued Interstate for tortious interference with that contract.

Interstate successfully defended by claiming that as a matter of law it could not be liable for tortious interference because Mr. Hutchens was predisposed to breach his covenant not to compete. Interstate based its defense on the undisputed fact that Mr. Hutchens had intervening employment with Polymeric. In other words, Interstate argued that because Mr. Hutchens already showed his intention to breach his non-compete by working for another employer before his employment with Interstate, Mr. Hutchens never intended to abide by the non-compete and Interstate cannot be liable for Mr. Hutchens’ actions. In its order granting Interstate’s motion for summary judgment, the trial judge agreed. The trial judge concluded that the employee had a predisposition to breach is contract with FCI and, as a result, Interstate did not cause or induce him to breach the contract’s covenant not to compete.

FCI appealed

The appellate court affirmed the trial court and stated that “Interstate merely entered into an employment agreement with Hutchens knowing that he could not honor his covenant not to compete with FCI and at the same time work for Interstate.” The appellate court explained that FCI could not prove the required element of “causation” to win on its tortious interference claim. Causation requires a plaintiff to prove that the defendant manifested a specific intent to interfere with the business relationship. The new employer will not be held liable unless it is established that the new employer intended to procure a breach of the contract. The appellate court explained that “[o]ne does not induce another to commit a breach of contract with a third person … when he merely enters into an agreement with the other with knowledge that the other person cannot perform both it and his contract with the third person.”

Florida Non-Compete Agreements: Importance of Injunction Bond

Non-compete cases generally move toward a temporary injunction hearing where the trial judge hears evidence and legal argument, and decides whether the former employer has satisfied its legal burden to prove that a temporary injunction is warranted. Florida law also requires a bond be posted as a necessary condition to entry of a temporary injunction. Section 542.335(1)(j) of Florida’s non-competition covenant statute provides that a temporary injunction requires a bond. In addition, Rule 1.610(b), Florida Rules of Civil Procedure, states in pertinent part: “No temporary injunction shall be entered unless a bond is given by the movant in an amount the court deems proper, conditioned for the payment of costs and damages sustained by the adverse party if the adverse party is wrongfully enjoined.”

The bond is critical because it sets a ceiling on the amount a party can recover for wrongful entry of a temporary injunction. Section 60.07, Florida Statutes, provides that “[i]n injunction actions, on dissolution, the court may hear evidence and assess damages to which a defendant may be entitled under any injunction bond, eliminating the necessity for an action on the injunction bond if no party has requested a jury trial on damages.” Florida appellate courts have interpreted section 60.07 as requiring the existence of a bond for a party to recover damages from the wrongful or erroneous issuance of a temporary injunction against that party.

For example, in Vital Pharmaceuticals, Inc. v. Professional Supplements, LLC, 210 So.3d 766 (Fla. 4th DCA 2017), a temporary injunction was wrongfully issued in the Circuit Court sitting in Broward County against former employees of a company, but the appellate court determined that the employees were not allowed to recover damages, including attorneys’ fees, from the former employer. The appellate court based its conclusion on the fact that the trial court failed to issue a bond when it issued the temporary injunction.

Similarly, in Hathcock v. Hathcock, 533 So.2d 802 (Fla. 1st DCA 1988), the appellate court denied the appellant’s claim for damages (including attorney’s fees) resulting from erroneous entry of an injunction by a trial court because damages were not awardable under section 60.07, Florida Statutes, when there was no injunction bond issued. The appellate court had decided that a temporary injunction order in a dissolution proceeding was erroneously entered by the trial court because it “failed to impose the bond requirements of Rule 1.610(b).” The appellate court explained in pertinent part:

Finally, appellant claims that he is entitled, on reversal and remand to the trial court, to compensatory and punitive damages and attorney’s fees as determined by the trial court based on the erroneous issuance of the temporary order. As authority, appellant cites to … cases [that] rely upon Section 60.07, Florida Statutes, in holding that a defendant is entitled to recover damages (including attorney’s fees) which resulted from the issuance of a temporary injunction. However, fatal to appellant’s reliance upon the above authorities is the fact that Section 60.07 allowing the court in the main suit to determine and award damages upon dissolution of an injunction applies only where an injunction bond as been filed. See Hoffman v. Barlly, 97 So.2d 355 (Fla. 3d DCA 1957). Thus, any remedy appellant might have for damages for the erroneous issuance of the subject order must lie elsewhere than the instant suit.

Successful and competent defense against a temporary injunction must include arguing for the highest bond amount that the evidence will allow. While the first goal will be to defeat the temporary injunction at the trial court level, the bond would be essential to recover damages in the event the temporary injunction is later dissolved on appeal or in later court proceedings. Failure to secure a bond in the highest amount could result in failure to recover damages from an unlawful injunction. Peter Mavrick is a Fort Lauderdale and Miami non-compete attorney who regularly represents clients in non-compete litigation in Broward, Miami-Dade, and Palm Beach Counties.

The information herein is not intended as legal advice, and any advice would require understanding the client’s particular legal situation.

The Mavrick Law Firm engages engages every aspect of the law and facts to persuasively present them to the court.

Sample Case Results

• Mr. Mavrick successfully defended a business and its owner in a lawsuit alleging breach of a non-competition covenant. At the end of the case, the non-competition covenant was invalidated and Mr. Mavrick’s client was reimbursed its legal expense.
• Represented company and its owners sued by former employer corporation for breach of non-competition contract and hiring an employee of the former employer. At end of the emergency hearing the former employer set with the Judge to obtain a temporary injunction against my clients, the Judge indicated that he would rule in favor of my clients and invalidate the non-competition contract. The case later settled where the former employer corporation paid my clients’ fees and costs and an additional amount as damages.
• Represented company and its owner who were sued by former employer corporation for breach of non-competition contract and theft of trade secrets. My client counterclaimed. While motions were pending with the Judge, the former employer corporation settled by dismissing its case, agreeing in writing that its non-competition contact was invalid and that no trade secrets were ever stolen by my clients, and reimbursing the attorney’s fees and costs of my clients.
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