Taking the Fight to the Bullies: Tortious Interference Liability for Both Employer and Attorney on Baseless Restrictive Covenants, Part I
Say the words “tortious interference” to any attorney familiar with litigation concerning noncompete and nonsolicitation agreements, and he or she will almost certainly associate it with claims against a former employee for allegedly soliciting the former employer’s customers, or with the employee’s new employer for causing the employee to violate a restrictive covenant. Very few will consider potential claims that the employee may have against his or her former employer, or even the former employer’s attorney. Yet multiple jurisdictions — including Florida — have recognized tortious interference claims when an employer has interfered with a former employee’s new employment by threatening litigation against the new employer over a restrictive covenant that fails under the law. In a subject of law in which employees have virtually no room to bargain, this little-known application of the tortious interference doctrine allows an employee to take the fight to his or her former employer — and quite possibly his former employer’s counsel — in circumstances when the former employer has overstepped its boundaries and caused the employee to unjustifiably lose his or her job.
Employee Restrictive Covenants in Florida
Before considering the authority that allows a tortious interference claim based upon a former employer’s attempts to litigate an unenforceable restrictive covenant, it is first important to look at the requirements for such restrictive covenants to be enforced in Florida. Like most states,1 Florida does recognize the enforcement of noncompete and nonsolicitation agreements by employers against former employees. However, such enforcement is not without statutory limits. The “go-to” authority for employee restrictive covenants in Florida for such covenants executed on or after July 1, 1996,2 is F.S. §542.335.
Titled “Valid Restraints of Trade or Commerce,” §542.335 sets forth the main factor to determine whether a restrictive covenant is enforceable or not: the “legitimate business interest.” Trade secrets, valuable confidential business information, substantial relationships with specific customers, customer/client goodwill, and extraordinary or specialized training are all legitimate business interests that would support a covenant.3
Section 542.335 also requires a restrictive covenant to be reasonable in terms of length, and in cases of employees and independent contractors, the court will presume reasonable any restrictive covenant containing a period of less than six months and unreasonable any covenant exceeding two years.4 The employer will need to prove the reasonableness of any restrictive covenant between six months and two years long.5
An employer alleging a breach of a restrictive covenant is entitled to seek temporary or permanent injunctive relief;6 however, nothing in the statute requires that the employer send a prelitigation notice to either the offending employee, or in the cases of an alleged noncompete violation, the new employer.
The limited parameters of §542.335 create defenses to enforcement of restrictive covenants, and on numerous occasions courts have refused to enjoin a former employee under an alleged agreement. Successful defenses have included the inability of an employer to show irreparable harm,7 an employer’s abandonment of the intended line of work,8 The customer’s voluntary choice to seek out the former employee for business,9 or the lack of substantial relationships between the employer and the customers/clients (for example, when business is obtained through the bidding process).10 Courts have also held that restrictive covenants have been unreasonable in duration11 or, in instances concerning noncompete agreements, geographic scope.12
Moreover, any contract against an employee that does not abide by the restrictions of §542.335 would constitute an unlawful restraint on trade and, thus, violate F.S. §542.18.13
But it is one thing for a former employee to defend against an injunction to enforce a restrictive covenant; it is quite another matter to take the fight to the employer and argue that the employer tortiously interfered with the employee’s existing business relationship by threatening litigation against a new employer. Yet several jurisdictions, including Florida, have laid the groundwork for exactly that scenario.
Tortious Interference Claims Based on Invalid Covenants
One of the first instances of a recognized tortious interference claim by an employee against a former employer came in the form of a 1992 case out of Missouri, Luketich v. Goedecke, Wood & Co., 835 S.W.2d 504 (Mo. App. 1992). Luketich concerned a scaffolding worker who resigned his position with his former employer (Goedecke) and went to work for another scaffolding company (Patent). Soon thereafter, Goedecke sent letters to both Luketich and Patent, threatening to sue them both based on a purported noncompete agreement that Luketich had executed while employed with Goedecke. Luketich’s counsel responded that Goedecke breached its agreement with Luketich by failing to compensate him, and that any restrictive covenants were rendered unenforceable by this breach. Despite being appraised of Luketich’s position, Goedecke refused to relent on its threats to sue Luketich and Patent, and Patent, seeking to avoid litigation, ultimately terminated Luketich.
Luketich sued Goedecke, seeking to enjoin Goedecke from enforcing the noncompete agreement and alleging that Goedecke had tortiously interfered with his business relationship with Patent. The trial court found in favor of Luketich on the tortious interference claim and prohibited further enforcement of the noncompete. On appeal, the court of appeals of Missouri held an employer could attempt to enforce a restrictive covenant if it had a “reasonable, good faith belief in the validity of the agreement.”14 While the court upheld its injunction against Goedecke as to further enforcement of the noncompete, it reversed the tortious interference judgment because Luketich had not provided evidence that Goedecke knew the noncompete was unenforceable.15 Notwithstanding the outcome, Luketich nonetheless paved the way for a successful tortious interference claim in circumstances in which an employer should have known its restrictive covenant could not be enforced.
A 1994 West Virginia case, Voorhees v. Guyan Machinery Co., 446 S.E. 672 (W. Va. 1994), took the tortious interference claim to another level. Voorhees involved a salesman whose then-employer (Guyan) required he sign a noncompete agreement. After resigning from Guyan, Voorhes went to work for a competing company, Polydeck Screen Corporation. Upon learning this, Guyan’s own chairman contacted Polydeck and threatened to “go to the highest court of the land” to enforce the agreement.16 As Voorhees was unable to renegotiate the terms of the noncompete with Guyan, Polydeck reluctantly terminated him. Voorhees then sued Guyan, alleging that it tortiously interfered with his employment relationship with Polydeck. After the jury found for Voorhees, Guyan appealed to the West Virginia Supreme Court.17
Similar to the employer in Luketich, Guyan argued it was justified in contacting Polydeck in order to enforce its noncompete agreement with Voorhees. However, unlike the court in Luketich, the Voorhees court seemed less interested in Guyan’s argument that it acted in good faith, and instead conducted a Florida-style inquiry as to the legitimate interests necessary to support the covenant. The court found that the actual competition between Guyan and Polydeck was minimal, and Guyan had not demonstrated that it had provided Voorhees with any proprietary and confidential information. In affirming the verdict, the court held that Guyan’s “belief that the non-competition agreement was valid is irrelevant to the issues of [its] liability and presents no logical inconsistency in the jury’s findings.”18 The court also upheld a punitive damage award against Guyan, finding that its threats of litigation against Polydeck were malicious and were intended “to cause Mr. Voorhees to lose his job with Polydeck, notwithstanding the unenforceable nature of the noncompetition agreement.”19
More recently, in 2009, the Ohio Court of Appeals considered a tortious interference claim based on an employer’s threats over a restrictive covenant in Hidy Motors, Inc. v. Sheaffer, 916 N.E.2d 112 (Ohio App. 2d 2009). The employee at issue (Scheaffer) had a noncompete agreement with a car dealership (Hidy), but left to work for another dealership. Thereafter, Hidy’s manager called the new employer and complained that Scheaffer was under a noncompete agreement; as a result, Scheaffer was terminated. Scheaffer filed suit against Hidy on multiple grounds, including tortious interference, but the trial court granted Hidy’s motion for summary judgment. However, the appellate court reversed the summary judgment, finding that the trial court erred by failing to consider whether the noncompete agreement was enforceable and supported by legitimate interest. The court rejected Hidy’s argument that the tortious interference claim should be dismissed because there was no evidence of malice, noting: “Actual malice in a tortious interference claim is not ill-will, spite or hatred; rather, it denotes an unjustified or improper interference with the business relationship.”20
Until 2002, no cases similar to Luketich or Voorhees existed on the books in Florida. That changed, however, with the Third District Court of Appeal case, SCI Funeral Services of Florida, Inc. v. Henry, 839 So. 2d 702 (Fla. 3d DCA 2002). In SCI, an employee (Henry) was employed by SCI as a group sales representative and was required to execute a noncompete agreement. He was later terminated after his tour of duty with the army was extended, and later went to work for SCI’s competitor, Woodlawn Park Cemetery Company. Upon learning this, counsel for SCI sent Henry a cease-and-desist letter threatening to file suit on the noncompete, and copied it to Woodlawn. In a follow-up conversation between SCI and Woodlawn, SCI threatened to sue Woodlawn if it continued to employ Henry, and as a result, Henry was terminated.
Henry then sued SCI and included a claim for tortious interference with his employment relationship with Woodlawn. A jury found in Henry’s favor and awarded $500,000 (ultimately remitted to $350,000). On appeal, SCI argued that the tortious interference judgment should be reversed, as it claimed that its demand letter and subsequent communications to Henry and Woodlawn were protected under litigation privilege. The Third District disagreed, finding that because in this circumstance the noncompete agreement at issue had already expired by the time SCI had threatened Woodlawn with litigation, it was no longer an enforceable agreement, and Henry was entitled to relief. The court noted: “It stands to reason that an employer cannot threaten an employee with litigation over a non-compete agreement which has expired. If the employer wrongly does so, thus causing the employee to lose his or her job, there must necessarily be a judicial remedy for such conduct.”21
Based on SCI, as well as similar cases from other jurisdictions, it would appear that an employee’s claim of tortious interference against a former employer who successfully costs them a job by threatening his or her new employer with litigation would be actionable in Florida under certain circumstances. However, beyond just the employer’s own liability, another question emerges: Could the attorney participating in the communications also be held jointly liable? Another Florida case directly citing SCI raises that distinct possibility.
The SCI-North Star Connection
Six and a half years after the Third District handed down its decision in SCI, the Middle District of Florida considered a motion for summary judgment in North Star Capital Acquisitions, LLC v. Krig, 611 F. Supp. 2d 1324 (M.D. Fla. 2009). In a counterclaim to the original action, debtors in North Star alleged a violation of the Florida Consumer Collection Practices Act (FCCPA) against both a debt collection agency and its attorney. Critical to the case was whether a letter sent by the debt collector’s attorney to debtors threatening litigation constituted a “willful and intentional misuse of process” for the purposes of the FCCPA.22 The defendants claimed that the letters were “settlement negotiations” and that they were shielded from liability by litigation privilege. However, citing SCI as authority, the Middle District quickly pointed out: “[N]ot every event bearing any relation to litigation is protected by the privilege because…if the litigation privilege applied to all actions preliminary to or during judicial proceedings, an abuse of process claim would never exist, nor would a claim for malicious prosecution.”23 The Middle District then found that the claims of litigation privilege immunity were inapplicable, holding, “[a]pplying the litigation privilege to the communications here would eviscerate the FCCPA and allow attorney debt collectors to avoid liability under state law for potentially abusive and harassing collection procedures simply by filing a lawsuit before attempting to collect a debt.”24
Although on its face SCI and North Star appear to have little in common — the former an action for tortious interference concerning a noncompete agreement, the latter a statutory action alleging improper debt collection procedures — a deeper look finds that common themes between the two abound. Both cases concern presuit communications and threats of litigation. Both serve as prime examples of scenarios when the presence of an attorney prior to suit makes the threat of litigation all the more real and ominous to the recipient of the communications. Perhaps most importantly, in both cases, the courts chose not to extend litigation privilege immunity to the communications at issue. Thus, it is not unreasonable that a judge may draw the analogy between attorneys for debt collectors who use improper tactics and threats of litigation against debtors, and attorneys for employers who threaten suit against a former employee’s new boss based on an unenforceable restrictive covenant. If anything, the employee who is terminated based on these threats is an even more sympathetic victim deserving of justice; while a debtor may have legitimately accumulated large amounts of unsatisfied debts, the employee has done nothing wrong other than to seek to earn a living in the field which he or she may be best experienced, yet is subjected to a restrictive covenant that does not conform to the law.
Florida courts have wisely pointed out that, “[p]rofessionals, such as lawyers and accountants, are always agents of their clients.”25 Given that agents can be held personally liable for intentional tortious acts committed by their principals (even when committed within the scope of employment),26 The attorney who willingly follows his or her client’s instructions and demands that a new employer terminate his or her client’s former employee based on an unenforceable restrictive covenant could very well find himself or herself a party to a tortious interference action.
1 California stands alone in failing to recognize noncompete agreements. See Edwards v. Arthur Anderson, LLP, 189 P.3d 285 (Cal. 2008).
2 Employee restrictive covenants executed before July 1, 1996, are governed by
Fla. Stat. §542.33, which contains slightly broader — and arguably more vague — parameters for enforcement of noncompete and nonsolicitation agreements.
3 See Fla. Stat. §542.335(1)(b) (2010).
4 See Fla. Stat. §542.335(1)(d)(1) (2010).
5 See, e.g., Southernmost Foot and Ankle Specialists, P.A. v. Torregrosa, 891 So. 2d 591 (Fla. 3d D.C.A. 2004).
6 See Fla. Stat. §542.335(1)(j) (2010).
7 See, e.g., University of Florida v. Sanal, 837 So. 2d 512 (Fla. 1st D.C.A. 2003); Don King Productions, Inc. v. Chavez, 717 So. 2d 1094 (Fla. 4th D.C.A. 1998).
8 See, e.g., Wolf v. James G. Barrie, P.A., 858 So. 2d 1083 (Fla. 2d D.C.A. 2003).
9 See, e.g., Scarborough v. Liberty National Life Insurance Co., 872 So. 2d 283 (Fla. 1st D.C.A. 2004); Lotenfoe v. Pahk, 747 So. 2d 422 (Fla. 2d D.C.A. 1999).
10 See, e.g., Shields v. Paving Stone Co., 796 So. 2d 1267 (Fla. 4th D.C.A. 2001); Anich Industries, Inc. v. Raney, 751 So. 2d 767 (Fla. 5th D.C.A. 2000).
11 See, e.g., Advantage Digital Systems, Inc. v. Digital Imaging Services, Inc., 870 So. 2d 111 (Fla. 2d D.C.A. 2003).
12 See, e.g., Atkins v. Litsinger, 513 So. 2d 178 (Fla. 2d D.C.A. 1987).
13 See, e.g., LT’s Benjamin Records, Inc. v. Machete Music, 2010 U.S. Dist. LEXIS 70487 (S.D. Fla. 2010).
14 Goedecke, 835 S.W.2d at 508.
15 Id. at 509.
16 Voorhees, 446 S.E. at 674.
17 Id. at 675.
18 Id. at 677.
19 Id. at 678.
20 Hidy Motors, 916 N.E.2d at 1132.
21 SCI, 839 So. 2d at 706.
22 North Star, 611 F. Supp. 2d at 1329.
23 Id. at 1330.
24 Id. at 1332.
25 See Lipsig v. Ramwali, 760 So. 2d 170, 186 (Fla. 3d D.C.A. 2000).
26 See First Financial USA, Inc. v. Steinger, 760 So. 2d 996, 997-98 (Fla. 4th D.C.A. 2000).
Peter R. Ulanowicz is an associate attorney with the law offices of Donna M. Ballman, P.A., located in Ft. Lauderdale. He specializes exclusively in the area of labor and employment law. Mr. Ulanowicz was admitted to The Florida Bar in 2005.
This column is submitted on behalf of the Labor and Employment Law Section, Jill Steinberg Schwartz, chair, and Frank E. Brown, editor.