Florida law, specifically section 542.335, Florida statutes, generally authorizes courts to enforce non-compete and other post-employment restrictive covenants, provided the agreements are in writing and signed by the employees against whom enforcement is sought, are reasonable in time, area, and line of business, and are supported by one or more legitimate business interests supporting the restrictive covenants.
Section 542.335 is fairly detailed. The statute defines what a reasonable time period is (it depends on the nature of the restrictive covenant), it lists several legitimate business interests, and it even addresses potential defenses. For example, it states that the court “[s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.”
Still, section 542.335 leaves several issues unaddressed, leaving the courts to sort them out. Several of those issues are addressed in a 48 page opinion issued recently by the Eleventh Circuit Court of Appeals in Proudfoot Consulting Co. v. Gordon (11th Cir., July 30, 2009). The Eleventh Circuit affirmed the district court’s injunction, but reversed the $1.66 million damages award to the former employer.
Here are some key points to take away from the court’s decision:
• Where a non-compete covenant does not contain a geographic limitation, the court can supply a reasonable geographic scope. And where, as here, the employee had been assigned to a territory that included all of North American and Europe, this geographic area is reasonable.
• The court expressed doubt that a broad non-compete agreement that prohibits the former employee from working for a competitor, irrespective of which clients he is serving, would be reasonably necessary to protect an employer’s interest in the relationships that the former employee developed with its clients.
• The court also expressed doubt that such a broad non-compete agreement would be reasonably necessary to protect client-specific confidential information, if restrictions that prevent the employee from contacting, or working for, those clients would be sufficient to protect that information.
• On the other hand, the court stated that where an employee has access to confidential business information crucial to the success of the employer’s business, the employer has a strong interest in enforcing a covenant not to compete, irrespective of whether the employee improperly retains and uses that information in his new employment. But the court noted that it is unclear under Florida case law precisely when confidential information will justify a broad non-compete covenant. Is it sufficient that the employee be in a position at his new employer to use the former employer’s confidential information? Or must the former employer meet the higher burden of proving that disclosure of the confidential information by the employee would be inevitable in the employee’s new position? The court declined to answer this question, finding that under the facts of this case, where the employee had actually retained some of his former employer’s confidential business information, the potential disclosure of that information to his new employer justified the enforcement of the non-compete covenant.
• It is not necessary that the former employer prove that the employee intentionally breached the restrictive covenants at issue in order to receive injunctive relief. The employee’s good faith, reasonable belief that he is not in breach of a restrictive covenant is no defense.
• With respect to damages, the fact that the new employer profits from a breach of its employee’s non-compete agreement with his former employer is irrelevant absent a finding that the employee directly caused his former employer to lose profits. “Damages for breach of a non-compete are intended to make the prior employer whole, not to punish employees.” Furthermore, “disgorgement of profits earned is not a remedy for breach of contract,” especially where the new employer is not even a party to the litigation.