non-compete

Referral Sources can be a Protected Legitimate Business Interest

Posted by David Adelstein on September 16, 2017
Trial Perspectives / Comments Off on Referral Sources can be a Protected Legitimate Business Interest

In a big case for employers that rely on referrals for the viability of their business, the Florida Supreme Court held that referral sources may be a protected legitimate business interest under Florida Statute s. 542.335 based on the context and proof.  Hence, referral sources can be protected under a non-compete / non-solicitation agreement that prohibits the employee, upon leaving, from soliciting referrals for a period of time.   White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, 42 Fla. L. Weekly S803a (Fla. 2017) (holding that referral sources for a home health care company may be a protected legitimate business interest depending on the context and proof).

This is a big win for employers that have employees sign non-compete and non-solicitation agreements as a condition of employment to safeguard referral lists and sources.   Notably, the term “referral sources” is not specifically called out in Florida Statute s. 542.335, which is a statute that deals with valid restraints on trade (or restrictive covenants in employment agreements such as non-compete or non-solicitation-type agreements). However, the Florida Supreme Court confirmed that the specific legitimate business interests called out in the statute are non-exhaustive meaning other interests, such as referral sources, can constitute a legitimate business interest of an employer.   The context and proof is important, however, with respect to any business interest to establish it is actually a legitimate business interest that should be protected in a restrictive covenant (such as a non-compete or non-solicitation-type agreement).

In language that I find to be extremely germane, the Florida Supreme Court stated:

However, the statute ameliorates any concern regarding overly restrictive covenants. Section 542.335 commands courts to modify, or blue pencil, a non-competition agreement that is “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.” Thus, section 542.335’s phrasing of the business interests that may be protected in broad terms and its restricting courts from applying certain rules of contract construction, the statute grants trial courts fairly wide discretion to fashion the appropriate context-dependent remedy

White, supra, (internal citations omitted).

This language is germane because it reaffirms a trial court’s wide discretion to modify or blue-pencil (red-line) a non-compete or non-solicitation agreement that may be overly broad to protect only those business interests the court deems legitimate. Thus, the trial court does not have to deem the agreement unenforceable, but can modify the terms of the restrictive covenant language and fashion the appropriate remedy to protect the true, legitimate business interests of an employer.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Enforcing Non-Compete Agreement with Injunctive Relief

Posted by David Adelstein on March 19, 2017
Uncategorized / Comments Off on Enforcing Non-Compete Agreement with Injunctive Relief

There are numerous employers that want employees to sign a non-compete, non-disclosure, and non-solicitation agreement (collectively, the “non-compete agreement”).   For good reason, they don’t want to train employees to learn the business’ trade secrets and business practices (e.g., marking strategies, pricing, techniques, customer lists, etc.) only to then compete with the employer and solicit its clients.   The non-compete agreement will allow the employer to move for injunctive relief if a former employee violates the agreement to maintain the status quo and prevent the irreparable harm to the employer.

An example is as follows. In Allied Universal Corp. v. Given, 42 Fla. L. Weekly D631a (Fla. 3d DCA 2017), an employer that engaged in the manufacture and distribution of water treatment chemicals hired an employee. The company trained the employee regarding its practices and provided him with proprietary information such as production costs, customer lists, prospective customer lists, and marketing and pricing information. The employee’s non-compete agreement provided he would not compete with the employer for 18 months after leaving the company and within a 150-mile radius of any of the employer’s facilities. The employee left the company to work for a competitor and the employer moved for a preliminary injunction to enforce the non-compete agreement against the employee.

The trial court denied the employer’s motion for a preliminary injunction after an evidentiary hearing. The employer appealed. Because a trial court has discretion in granting or denying an injunction, its decision will not be overturned absent an abuse of discretion. In this case, the appellate court reversed the trial court finding the trial court abused its discretion in denying the granting of the preliminary injunction.

Non-compete agreements in Florida will be governed by Florida Statute s. 542.335, which is designed to construe restraints on trade and commerce in favor of providing reasonable protection to legitimate business interests. The statute includes a non-exhaustive list of legitimate business interests, such as, trade secrets, valuable confidential information, customer goodwill, substantial relationships with specific prospective or existing customers, specialized training, etc.

A party moving for a preliminary injunction must establish:

  • “the likelihood of irreparable harm and the unavailability of an adequate remedy at law;
  • a substantial likelihood of success on the merits;
  • that the threatened injury to the petitioner outweighs any possible harm to the respondent; and
  • that the granting of the temporary injunction will not disserve the public interest.”

Allied Universal Corp., supra.

Importantly, the “breach of a non-compete agreement that threatens a former employer’s goodwill and relationships with its customers, indicates that nothing short of an injunction would prevent this loss.” Allied Universal Corp., supra.

At the evidentiary hearing, the employer established legitimate business interests that it wanted to protect including the employer’s relationship with specific existing and prospective customers. The evidence showed that the employer trained the employee in its production techniques, marketing strategies, and pricing strategies.  Hence, the employer showed it would be irreparably harmed by the employee’s violation of the non-compete agreement—the employer’s business would be harmed if the employee were to use the employer’s customer information, relationships, and marketing strategy in his new employment. This meant that the burden shifted to the employee to establish the absence of an irreparable injury, which the employee was unable to do. For this reason, the appellate court reversed the trial court and remanded with directions for the trial court to grant the temporary injunction.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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