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The Florida Bar Journal
March, 2018 Volume 92, No. 3
Florida’s Noncompete Statute: “Reasonable” or “Truly Obnoxious?”

by Hank Jackson

Page 10

Florida’s noncompete statute, F.S. §542.335, governs the enforceability of noncompete agreements. The statute uses the word “reasonable,” or a derivation of it, 17 times. Reasonableness is the primary standard resorted to throughout the statute to determine whether a noncompete agreement is enforceable. This includes a core requirement in the statute that noncompete agreements must be “reasonably necessary to protect the legitimate business interest” of the party trying to enforce the agreement.1

Recently, the Florida Supreme Court in White v. Mederi Caretenders Visiting Servs. of Southeast Florida LLC, 226 So. 3d 774, 2017 WL 405393 (Fla. Sept. 14, 2017), addressed the responsibility of trial courts to evaluate the enforceability of noncompete agreements based on the specific facts of each case.2 The court in White accepted jurisdiction because of a direct conflict between Florida’s Fourth and Fifth district courts of appeal on whether a company’s referral sources may be a protectable legitimate business interest sufficient to support the validity of a noncompete agreement.3 In addition to ruling on this precise issue and holding that referral sources can be such a legitimate business interest depending on the specific facts of the case,4 the court took the opportunity to reference the reasonably necessary requirements within the noncompete statute.5

That the Florida Supreme Court recently referenced the reasonableness requirements of the noncompete statute is significant, as it comes after other courts have criticized Florida’s noncompete statute. For instance in 2015, the New York Court of Appeals found that Florida’s noncompete statute was unenforceable because it was against New York’s public policy.6 As will be discussed later, the New York court explained that this public policy exception was reserved for laws that are “truly obnoxious.”7 Also, as will be discussed, federal courts and other state courts outside of Florida have either narrowly interpreted the statute to justify not enforcing noncompete agreements or, like the New York Court of Appeals, directly refused to follow the statute on public policy grounds.

Despite these criticisms, the Florida Supreme Court in White expressed its commitment to be guided by the legislative intent and the plain language of the statute.8 However, in doing so, the court in White also referred to the statute’s reasonableness requirements and encouraged the active involvement of trial courts in assessing the enforceability of noncompete agreements by emphasizing that the trial courts were the best able to apply the statute to specific fact situations9 and that the statute “grants trial courts fairly wide discretion to fashion the appropriate context-dependent remedy.”10

History of Noncompetes in Florida
In general, noncompete agreements (also referred to as restrictive covenants) are contractual agreements wherein an employee promises not to compete with his or her employer’s business during employment and for a specified time after the termination of such employment. Noncompete agreements can include an employee’s agreement not to work for the employer’s competitor(s) and an employee’s agreement not to solicit the employer’s customers for a specific period of time.11 In addition to the employee/employer context, noncompete agreements are often utilized between a buyer and a seller in the purchase of an ongoing business. The buyer will request a noncompete agreement from the seller so that the seller does not immediately after the sale of the business start a competing business or poach the customers of the business the seller just sold.

In general at common law, noncompete agreements were often found to be void as an improper restraint of trade. This was also the case under Florida common law,12 until the Florida Legislature statutorily set the guidelines for determining whether noncompete agreements were too restrictive. Florida’s statutory noncompete provisions have been revised and modified several times by the legislature; in 1996 there was a total rewrite of the noncompete statute.13 Since that rewrite, over 20 years ago, no modifications have been made.14

Florida’s Current Noncompete Statute — Florida’s current noncompete statute, §542.335, governs all noncompete agreements entered into on or after July 1, 1996.15 Its fundamental precepts are fairly straightforward. The statute starts with the requirement that noncompete agreements are not prohibited “so long as such contracts are reasonable in time, area, and line of business.”16 The statute then provides that a person seeking to enforce a noncompete agreement “must plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.”17 Next, the statute sets forth that legitimate business interests include, but are not limited to, five items: trade secrets; valuable confidential information; substantial relationships with customers, patients and clients; goodwill; and extraordinary or specialized training.18 Importantly, the statute also provides that the contractual restrictions must be connected to the protection of legitimate business interests; a person seeking enforcement must prove “the contractually specified restraint is reasonably necessary to protect the legitimate interest….”19

Two Major Points of Criticism — While the provisions discussed above are standard noncompete principles and provisions that have generally not been the subject of criticism and have been enforced by other courts, some of the detailed provisions of Florida’s noncompete statute that follow these standard provisions have been deemed unbalanced and excessively pro-employer. Probably the most criticized is the provision that prevents consideration of the harm to the employee: the statute states that “[i]n determining the enforceability of a restrictive covenant, a court shall not consider any individualized economic or hardship that might be caused to the person against whom enforcement is sought.”20 A second provision often criticized is the statute’s prohibition against any rule of contract construction that “requires the court to construe a restrictive covenant narrowly, against the restraint, or the drafter of the contract.”21 As employers are typically seeking enforcement of noncompete agreements, these two provisions favor the employer.

Florida’s Noncompete Statute Under Attack
The criticism of Florida’s noncompete is not new. It is worth noting that, unlike other legislative measures that were adopted by Florida from a uniform code prepared by a commission of experts to promote uniformity among the states,22 there is not an accepted uniform noncompete statute. Consequently, how states treat noncompete restrictions varies considerably. At one end of the spectrum, California does not permit noncompetes except in connection with the sale of a business.23 As a result, California is viewed as a pro-employee public policy state. On the other end of the spectrum is Florida, which is considered to have the most pro-employer noncompete statute in the country.24 Despite well-known and accepted diversity in state noncompete laws, the criticism of Florida’s noncompete statute seems lately to be more intense and at higher levels.

Criticism by New York’s Highest Court — The New York Court of Appeals (the state’s highest state court) in Brown & Brown, Inc. v. Johnson, 34 N.E.3d 357 (2015), refused to enforce Florida’s noncompete statute because it was contrary to public policy. In the words of that court, the statute failed the “truly obnoxious” test.25

The facts of Brown & Brown were not particularly unique. The employee was hired by the plaintiff, a Florida corporation, to perform job duties in New York. Pursuant to the terms of the employment agreement, the parties agreed to a choice-of-law provision stating that disputes over the agreement would be governed by Florida law.26 The employment agreement also contained noncompete restrictions in the form of a nonsolicitation clause that precluded the employee from soliciting customers of the New York offices of Brown & Brown for two years after her employment with the company.27

After several years of employment, the employee was terminated. Within one month thereafter, she began to work for a competitor providing services to former customers of Brown & Brown.28 A lawsuit was brought in New York alleging that the employee breached the nonsolicitation clause by soliciting Brown & Brown’s customers.

As a result, New York’s highest court in Brown & Brown ultimately addressed whether Florida’s noncompete statute was enforceable in New York courts. The court was direct in stating that although the parties are generally free to contract as they wish, including choice of law provisions, New York courts would not enforce agreements where the chosen law violated “some fundamental principle of justice.”29 The court further explained that this public policy exception was reserved “for those foreign laws that are truly obnoxious.”30

In its public policy analysis, Brown & Brown acknowledged that Florida and New York laws were similar in that restrictive covenants were required to be reasonable as to time, scope, and geographical area, and must be tied to a legitimate business purpose.31 However, other provisions of Florida’s noncompete statute were noted as not similar. One of those was Florida’s explicit prohibition against considering the hardship that enforcement of the noncompete agreement would place on the former employee.32 This contradicted New York law that requires a court to consider whether the noncompete agreement imposes undue hardship on the employee.33 A second provision that was singled out in Brown & Brown as not similar to New York law was Florida’s noncompete statutory provision requiring that courts construe restrictive covenants in favor of the employer and not use contract construction rules to interpret the restrictive covenant narrowly or against the restraint.34 The court explained that New York construes noncompete agreements strictly based on the public policy of not wanting to sanction the loss of a person’s livelihood.35

Consequently, the court in Brown & Brown concluded that Florida’s noncompete statute had a “nearly-exclusive focus on the employer’s interests” in its prohibition against narrowly construing restrictive covenants and its refusal to consider the harm to the employee.36 As such, the New York Court of Appeals found the application of Florida law would be offensive to a fundamental New York public policy and, therefore, the choice of law provision choosing Florida law was unenforceable on that basis.37

Federal Courts Consider Harm to Employee Additionally, federal courts applying Florida’s noncompete statute have found a way to consider the harm to the employee. In Transunion Risk and Alternative Data Solution, Inc. v. MacLachlan, 625 Fed. App’x 403 (11th Cir. 2015), the court reversed a district court’s finding that Florida’s noncompete statute precluded the consideration of the hardship to a defendant employee where a preliminary injunction was sought.38 In Transunion, the 11th Circuit was confronted with a purported conflict between the Florida noncompete statute and Fed. R. Civ. P. 65, which requires that a party seeking preliminary injunctive relief must, among other things, establish that the “threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party.”39 The 11th Circuit decided that Florida’s noncompete statute did not conflict with Rule 65 because the statute only limited what could be considered for purposes of determining “enforceability” and not specifically the type of remedy.40 In other words, according to the 11th Circuit, a noncompete agreement might still be enforceable, but not through the remedy of a preliminary injunction. Consequently, the 11th Circuit vacated the preliminary injunction and remanded the matter to the trial court to balance the hardship under Rule 65.41 The panel of the 11th Circuit issuing the opinion did not designate its decision for publication — meaning that it is not considered binding precedent, but may be cited as persuasive precedent.42

However, a district court in Florida has subsequently cited Transunion as authority and followed its holding. In Lucky Cousins Trucking, Inc. v. QC Energy Resources Texas, LLC, 223 F. Supp. 3d 1221, 1224 (M.D. Fla. 2016), the district court was asked to enter an injunction pursuant to Florida’s noncompete statute, but refused, in part, because of the harm to the party against whom the injunction was sought. The court specifically cited the 11th Circuit’s Transunion decision and its finding that the court must consider the harm to the individual in issuing an injunction to enforce noncompete agreements under Florida law.43 On the other hand, a Florida district court of appeals decision handed down less than three months after Transunion refused to consider the harm to the employee.44

Other Out of State Courts Find Noncompete Statute Against Public Policy — In addition to New York, the 11th Circuit, and federal district courts in Florida, other out-of-state courts have addressed §542.335 and found that Florida’s noncompete statute was too severe and should not be enforced.

In Unisource Worldwide, Inc. v. S. Central Ala. Supply, LLC, 199 F. Supp. 2d 1194 (M.D. Ala. 2001), the court considered whether enforcing a choice of law provision (providing for Florida law) relating to a noncompete agreement would be contrary to the fundamental policy of the state of Alabama. The court pointed to the same two provisions that New York’s highest court would single out years later — the provision stating that the courts shall not consider the hardship of the employee, and the provision against any rule of contract construction that requires the court to construe a restrictive covenant narrowly or against restraint.45 The court ultimately held that because Florida law on noncompete agreements was contrary to Alabama public policy, the choice of law provision would not stand and Alabama law would instead be applied.46

Similarly, in 2008, an Illinois appellate court refused to enforce a choice of law provision that required that Florida law be applied. In that case, Brown and Brown, Inc. v. Mudron, 379, 887 N.E.2d 437 (2008), the issue was whether application of Florida’s noncompete statute was contrary to the public policy of Illinois. The court held that under Illinois law, “a court must consider the hardship the covenant imposes upon the individual employee.”47 Yet, Florida’s noncompete statute specifically prohibited consideration of the harm to the employee. Consequently, the court concluded that Florida’s noncompete law was contrary to the public policy of Illinois and would not be applied.48

Also, the court of appeals in Georgia in Carson v. Obor Holding Company, LLC, 734 S.E.2d 477 (2012), refused to honor a choice of law provision requiring that Florida law apply to a noncompete agreement. The court, in refusing to apply Florida law, stated that under Georgia law the court in considering the reasonableness of the restriction must consider and balance the interests of both parties, including the party being restricted by the noncompete agreement.49

Florida Supreme Court in White Emphasizes Reasonableness and Context-Dependent Aspects of Statute
It is against this backdrop of criticism that the discussion in White concerning the statute’s reasonableness standard and that it was context-dependent may have more meaning. But before considering this, the procedural history of White and the precise issue that was directly before the court should also be understood.

Procedural History of White and the Precise Issue Presented — The court in White recognized a conflict between Florida’s Fourth and Fifth district courts of appeal regarding the statutory interpretation of a protectable legitimate business interest. Consequently, the Florida Supreme Court consolidated the cases from the two district courts for purposes of its decision in White.50 The issue for consolidated appellate review was whether referral sources for the home health services industry — which were the patients’ physicians and not the patients themselves — could be a legitimate business interest under Florida’s noncompete statute.51 According to the statute, a noncompete agreement must be supported by at least one “legitimate business interest,” which is defined as “including but not limited to” a list of five items. The third item, as reflected in §542.335(1)(b)(3), is relationships with “customers, patients, or clients.”

In Hiles v. American Home Therapy, Inc. 183 So. 3d 449, 454 (Fla. 5th DCA 2015), it had been held that referral sources were not specifically “customers, patients, or clients” and, therefore, were necessarily not protectable interests. To the contrary, in the Fourth DCA case — Mederi Caretenders Visiting Services of Southeast Florida, LLC v. White, 179 So. 3d 564, 564 (Fla. 4th DCA 2015) — it was ruled that such referral sources were protectable legitimate business interests. In the consolidated appellate review, the Florida Supreme Court in White reasoned that the language “includes, but is not limited to” shows that the list of protectable interests was not an exhaustive list, and there was “clearly no exclusion in the statute for referral sources.”52 It further held that “referral sources may be a protected legitimate business interest within the meaning of F.S. §542.335, depending upon the context and proof adduced” (the context and proof adduced to be determined by the trial court).53 Importantly, the court in White also acknowledged that it could not resolve all the factual questions and instructed that the cases be remanded all the way back to the trial courts.54 So the precise issue ruled upon by the court was a fairly narrow one — the plain meaning of the statutory language “including, but not limited to,” an issue that was properly before the court and needed to be resolved, but arguably not requiring a 25-page decision.

• White Seemingly Goes Beyond Issues Presented — Indeed, it can be argued that the Florida Supreme Court’s opinion in White went beyond what was necessary for the precise issue before it, presumably to provide clarification and guidance to the lower courts concerning Florida’s noncompete statute. Even though the court stated that the reasonable scope of the covenants was not before it,55 there were significant references in the opinion concerning the reasonableness requirements and the fact-specific nature of applying the statute.

For instance, the court raised the topic of whether Florida’s noncompete statute was too restrictive. It then offered a broad explanation or justification that the “statute ameliorates concerns regarding overly restrictive covenants” because its statutory language “commands courts to modify…noncompetition agreements that are ‘overbroad, overlong or otherwise not reasonably necessary to protect the legitimate business interest’ instructing courts to ‘grant only the relief reasonably necessary to protect such interest.’”56 The emphasis on the statute’s reasonable standard as a check to overly restrictive covenants did not appear to be a random interjection into the opinion; it was more an intended topic in need of discussion.

Additionally, even though the White opinion did not cite to the cases that have criticized Florida’s noncompete statute, the language in White touched upon (but without directly addressing) the criticisms — including the prohibitions against consideration of the hardship on the employee and against using rules of contract construction to construe a noncompete agreement narrowly or against the restraint.

Considering the Hardship to the Employee — The court in White made no direct reference to the statutory prohibition in Florida’s noncompete statute to balancing or considering the harm to the employee, the provision that was found in New York to be “truly obnoxious” and that the 11th Circuit in Transunion side-stepped by narrowly interpreting it as not applying in the context of injunctive relief under Rule 65.

However, there is language in White suggesting that the interests of and hardship on the employee are not to be totally ignored. The court pointed out that the noncompete statute must be viewed against the history that contracts in restraint of trade are generally unlawful, and that the statute was a carve-out or exception to such general prohibition that “strikes a delicate balance between legitimate business interests and a person’s inalienable right to work.”57 The inalienable right to work is protected by the Florida Constitution.58

Additionally, the court, while trying to harmonize the noncompete statute regarding protectable interests with its earlier analysis of restraints of trade, quoted, in a parenthetical, language in Capelouto v. Orkin Extermination Co. of Fla. Inc., 183 So. 2d 532, 534 (Fla. 1966), indicating that noncompete agreements should be enforced in such a manner as to “protect the legitimate interests of the employer without doing harm to the public interest, and without inflicting an unduly harsh or oppressive result on the employee.”59 This inclusion of the impact on the employee seems contrary to a strict prohibition against consideration of the employee’s hardship.

Can it be inferred from language in White that consideration of the hardship to the employee might be pertinent? Does the court’s references to the constitutional inalienable right to work, the ability of the courts to modify noncompete agreements that are not reasonably necessary, and the statute’s instruction to the courts to grant only relief that is reasonably necessary support such an inference? Might the Florida Supreme Court agree with the 11th Circuit opinion in Transunion and rule that the prohibition against consideration of the harm to the employee only applies to “enforcement” and not the “remedy”? No one knows, as the Florida Supreme Court has not precisely ruled on these issues, but it can be surmised from the White opinion that trial courts have considerable discretion to apply the reasonableness standard, and its findings should necessarily be context-based and fact-specific. In other words, there may be more than one way for the trial court to skin the proverbial cat.

Rules of Contract Construction — The White decision made a more direct reference to the provision in the noncompete statute that “a court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint.” This is the same provision that New York and other courts have found to be so slanted toward the employer and against the employee as to violate public policy. The court in White briefly mentioned the criticized provision and then tried to minimize its actual impact. It acknowledged the provision “restricts courts from applying certain rules of contract construction,”60 but then immediately balanced that in the very same sentence by emphasizing the statute also grants “the trial courts’ fairly wide discretion to fashion the appropriate context-dependent remedy.”61 Again, the court relied on the reasonableness standard within the statute and the need to apply that standard to the specific facts in each case to counter assertions that the statute was too restrictive. Indeed, the court in White held that the two cases consolidated before it for appellate review should be remanded all the way back to the trial courts to resolve issues of fact.

Returning to the question of whether Florida’s noncompete statute is reasonable or truly obnoxious, courts critical of the statute seem resolute in their opinion that certain provisions unfairly stack the deck against the employee and in favor of the employer. However, the Florida Supreme Court seems equally determined to follow the intent and plain language of the statute while also emphasizing the statute’s reasonableness standard and that trial courts have wide latitude to consider the specific facts of the case. So for the time being, New York’s highest court is likely to continue to view Florida’s noncompete statute as against public policy, and the Florida Supreme Court sees it as reasonable. What is “reasonable” and what is “obnoxious” may be like beauty: to some extent in the eye of beholder.

1 Fla. Stat. §542.335(1)(c) (2016).

2 White, 2017 WL 405393 at *8-9.

3 Id. at *1.

4 Id. at *10.

5 Id. at *8-9.

6 Brown & Brown, Inc. v. Johnson, 34 N.E.3d 357, 361 (2015).

7 Id. at 360 (quoting Conney v. Osgood Mach., 612 N.E.2d 277, 284 (1993)).

8 White, 2017 WL 405393 at *3.

9 Id. at *9.

10 Id.

11 Hilb Rogal & Hobbs of Florid, Inc. v. Gimmel, 48 So. 3d 957, 960- 62 (Fla. 4th DCA 2010); Environmental Services, Inc. v. Carter, 9 So. 3d 1258, 1262 (Fla. 3d DCA 2009).

12 Love v. Miami Laundry Co., 160 So. 2d 32, 34 (Fla. 1934).

13 In 1953, Fla. Stat. §534.12 was enacted then eventually replaced by Fla. Stat. §534.33. In 1996, the current noncompete statute was enacted.

14 White, 2017 WL 405393 at *10, n.1.

15 Fla. Stat. §542.335(3) (2016).

16 Fla. Stat. §542.335(1) (2016).

17 Fla. Stat. §542.335(1)(b) (2016).

18 Fla. Stat. §542.335(1)(b)(1-5) (2016).

19 Fla. Stat. §542.335(1)(c) (2016).

20 Fla. Stat. §542.335(1)(g)(1) (2016).

21 Fla. Stat. §542.335(1)(h) (2016).

22 As examples, Florida has adopted the Uniform Commercial Code (Fla. Stat. §671.101, et seq.) and Uniform Trade Secrets Act (Fla. Stat. §688.001, et seq.).

23 Edwards v. Arthur Anderson LLP, 189 P.3d 285 (2008) (the California Supreme Court confirmed its long standing public policy that employee noncompete agreements are not enforceable).

24 Norman D. Bishara, Fifty Ways to Leave Your Employer: Relative Enforcement of Covenants Not to Compete, Trends, and Implications for Employee Mobility Policy, 13 U. Pa. J. Bus. L. 751, 785 (Spring 2011).

25 Brown & Brown, 34 N.E.3d at 360.

26 Id.

27 Id. at 359.

28 Id.

29 Id. at 360.

30 Id. (quoting Conney v. Osgood Mach., 612 N.E.2d 277, 284 (1993)).

31 Id.

32 Id. at 361.

33 Id.

34 Id.

35 Id.

36 Id.

37 Id.

38 Transunion, 625 Fed. App’x at 404.

39 Id.

40 Id. at 407.

41 Id.

42 U.S. Ct. of App. 11th Cir. R. 36-2.

43 Lucky Cousins Trucking, 223 F. Supp. 3d at 1224.

44 In Florida Digestive Health Specialists, LLP v. Romon E. Colina, M.D. LLC, 192 So. 3d 491 (Fla. 2d DCA 2015), Florida’s Second District Court of Appeal held that whether the employee — against whom an injunction was sought — would suffer greater harm from the imposition of the injunction is not to be considered because the noncompete statute in §543.335(1)(g) explicitly prohibits such consideration. In making this ruling, the Second DCA relied upon and was supported by an earlier opinion by the First DCA in Depuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928 (Fla. 1st DCA 2012).

45 Unisource Worldwide, 199 F. Supp. 2d at 1201.

46 Id. at 1202.

47 Brown and Brown, Inc. v. Mudron, 887 N.E.2d at 440 (2008).

48 Id.

49 Carson, 734 S.E.2d at 483.

50 White, 2017 WL 405393 at *1.

51 Id.

52 Id. at *5.

53 Id. at *9.

54 Id.

55 Id.

56 Id.

57 Id. at *8.

58 Id. (citing Fla. Const. art. I, §2).

59 Id. at *8 (emphasis added).

60 Id. at *9.

61 Id.

Hank Jackson is a trial attorney with Shutts & Bowen LLP. He regularly represents companies and individuals in a variety of business disputes. He has extensive experience litigating noncompete restrictions arising out of the sale of a business as well as employment relationships.

[Revised: 02-26-2018]