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Primary Problems with Enforcing Non-Compete Agreements

 by Yasir Billoo, partner at Golden & Grimes LLP

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Businesses often require employees to sign non-compete agreements to protect their business interests. However, just because an employee has signed a non-compete agreement does not make the agreement valid under the law. Employers often attempt to overreach on such agreements, which may make the entire agreement invalid.

Beware of these issues before you require an employee to sign an agreement that may turn out to be unenforceable later.

1. Legitimate Business Interest.

As a prerequisite to non-compete agreements being enforceable in Florida, such agreements must be designed to protect a “legitimate business interest”.

The law allowing non-compete agreements assumes that the following are legitimate business interests: a. trade secrets (customer lists, price lists, etc.); b. valuable confidential information pertinent to the employer’s business (financial information, etc.); c. substantial relationships with specific prospective or existing customers, patients, or clients; d. goodwill associated with an ongoing business or professional practice; and e. extraordinary or specialized training provided to the employee by the employer.

2. Non-Compete Time Period.

Non-Compete agreements containing a restriction period of less than two (2) years are presumed, by law, to be valid and reasonable. However, for any restriction period more than six (6) months, employers may have to justify why the amount of time is reasonable. However, any restriction more than 2 years is going to be a hurdle for the employer to overcome. Like everything else, keep restrictions in the non-compete agreement reasonable to protect your legitimate business interests and it will likely allow the agreement to be enforceable.

4. Disclosure of Public Information.

Many companies get their sales leads from public sources. Phone books, professional directories, the internet, notification services, are all sources that are available to anyone in the industry. Therefore, a business that claims it is protecting its valuable secret client sources is going to have to show that the information was not available to everyone else in the industry. Existing customer lists or unique sources are protected, but chamber of commerce directories are not.

5. Breach by Employer.

If you, the business owner, put the non-compete provision in an employment contract spelling out compensation, insurance and other conditions of employment, it is important to have an attorney go through the contract with a fine tooth comb. If you breach the agreement by failing to pay all compensation due, failing to fulfill the insurance requirements, or failing to meet some other obligation, the employee may be relieved of all obligations under the contract. It is better to have a separate non-compete agreement, which makes hiring or continued employment contingent on the employee’s execution of the agreement.

6. Solicitation and Service.

Most non-compete agreements prohibit solicitation of an employer’s customers, but not service. For example, if your customer approaches an ex-employee to engage in competing business, your non-compete agreement likely does not prohibit such action by your ex-employee. A subtle difference like this can make a big difference in how you can enforce the agreement. Because while the employee will agree that he is not soliciting business from your customers, he can, nevertheless, do business with those customers if they approach him.

It is important to have an attorney prepare and review agreements such as non-compete agreements for your business. The cost is small compared to the headache you may face when you realize you cannot enforce the agreement(s) you have in place to protect your business.

 

Yasir Billoo

Yasir Billoo, a partner at Golden & Grimes LLP, earned his law degree from Nova Southeastern University in Ft. Lauderdale, Florida and was admitted to both the Florida Bar and the California Bar. He currently practices law in both states. Billoo also serves as President of the Florida Muslim Bar Association, and is also serving his third 2-year term as an Administrative Judge for Miami-Dade County’s Commission on Human Rights. Yasir specializes in giving legal advice to small businesses on his blog, Small Business Law.

 

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