Importance of Understanding Non-Compete Agreements
Several states, including Florida, recognize and enforce what are known as non-compete agreements. Ideally, a non-compete agreement is something that should protect both employer and employee, but that is not always the case. Before working for a company that requires a non-compete agreement, you should be aware of what exactly that is and what it can entail. Otherwise, you may find yourself in an extremely limited position when looking for work after leaving a company.
Overview of Non-Compete Agreements in Employment Law
There are no set standards for non-compete agreements, but they tend to be composed of similar components. The specific details of these components can determine whether a court would find a non-compete reasonable if challenged by an employee. Additionally, each state has its own interpretation of non-compete agreements and their validity in state employment laws.
What Is a Non-Compete Agreement?
A non-compete agreement, or non-compete, (also referred to as a “restrictive covenant”, “covenant not to compete”, or “post-employment restriction”), is a legal contract that prevents an employee from entering into competition with their former employer, either by joining a company in a similar field or by starting their own company.
Non-competes are used by employers to protect intellectual property, proprietary information, and anything else that the employer perceives to be their competitive advantage. In this way, the employer can keep a hold on their particular market.
The legality and enforcement of non-competes varies from state to state. Some states see non-compete agreements as a way of protecting legitimate business interests in a free market. Other states perceive restrictive covenants as overly competitive and severely limiting for employees looking to find work. States such as California and North Dakota do not recognize non-competes at all.
For states that do recognize non-competes, such as Florida, they follow their own standards of what constitutes both reasonable restriction and legitimate business interests. Even then, state courts may still disfavor non-compete agreements in Florida, and will modify them (referred to as “blue-penciling”) to comply with existing statutory laws.
Components of a Non-Compete Agreement
Duration of Restriction
Non-compete agreements typically cover a range of six months to two years, with one year being the average. The period of post-employment restriction can sometimes be longer or shorter depending on the industry or position, but the longer the length the less likely a court will find it reasonable.
Geographic Scope
Most non-competes and covenants not to compete include a geographical scope, comprising the specific area where a former employee is restricted from working. Employers will usually limit this to the radius of their work site or headquarters, but post-employment restrictions can encompass an entire city or even a state. As with duration, the broader this restriction, the more likely a court is to find it unreasonable.
Scope of Restricted Activities
Non-compete agreements primarily limit a former employee from working at a competing company. This restriction can sometimes be extended to include roles in which no trade secrets or proprietary information would be exchanged.
Non-competes also limit additional employment activities, such as starting a company in a similar field or developing a competing product. Even if a former employee is able to start a new business, they can be prevented from recruiting colleagues to join them. This is known as a non-solicitation agreement.
Identified Competitors
As a non-compete agreement seeks to keep employees from working with competing employers, those employers must be defined in the agreement. The agreement does not need to include every single potential competitor, but it should provide an overview of the industry and types of businesses that the employer perceives as active competition.
Remedies and Damages for Breach
In cases where a non-compete agreement is broken, an injunction against the employee or employees involved is usually sought as a remedy. If so, an employee will have to comply with the terms of the non-compete, even if it means leaving their current employer. A lawsuit may be filed as well, and damages can be sought and recovered with significant proof. Typically these damages consist of profits lost as a result of the breach.
Legal Considerations of Non-Compete Agreements
The legal considerations of non-compete agreements vary from state to state. In Florida, for instance, the non-compete statute puts favor on employers; employees wishing to challenge a non-compete must establish proof that the restrictive covenant is unreasonable. If so, the court will continue to enforce it under modified conditions. Florida law also allows the potential for economic or other hardships as a legitimate defense against a non-compete agreement. Although these laws are stricter than in other states, Florida courts have been hesitant to enforce non-compete agreements in cases where no trade secrets have been taken, and no active competition can be proved as a result.
Understanding Non-Compete Agreements in Florida
Under Florida law, a non-compete agreement is enforceable so long as it is determined to be “reasonable in time, area, and line of business”1, and the employer has legitimate business interests to be protected under Florida statute. For employees, a non-compete duration of up to two years is considered reasonable, with cases involving distributors or licensees allowing up to three years. For those with a controlling interest in a business, such as owning shares or assets, the duration of post-employment restriction can last as long as seven years. Professions that are exempt from the post-employment restriction include mediators and, where exclusive within a county, physician specialists.
Other states have more specific rules as to how non-compete agreements can be enforced. In Washington, for instance, non-compete agreements are prohibited for employees who make less than $100,000 annually, and contractors who make less than $250,000. As another example, the state of Hawaii has barred technology companies from drafting non-compete agreements.
Conclusion
Non-compete agreements are very fluid, and the details of one employer’s restrictive covenant will be quite different from another’s. Although most non-compete agreements will consist of duration, geographic scope, activities restricted, and identified competitors, these are not hard and fast rules. How states choose to interpret post-employment restrictions ultimately decides how employers choose to draft theirs. As of 2023, the Federal Trade Commission (FTC), under the Biden administration, has sought to impose a ban on non-compete clauses nationwide; at the moment, the legality of non-competes remains on a state-by-state basis.
A prospective employee should seek proper legal advice prior to signing any non-compete agreement. Legal counsel should also be sought if an agreement has already been signed and an employee wishes to work for a potential competitor of their former employer. Ludwin Law Group can help assess a non-compete agreement you have received or offer advice concerning a post-employment restriction you are currently under.
