Non-Compete Agreements – Those Are Un-American, Right?

After all, open competition is a bedrock concept of capitalism and the foundation of the American way, so preventing competition can’t be legal.  Well…it depends on where you live.  Some states do prohibit the enforcement of non-compete agreements under the theory that they impose unreasonable restrictions on trade and the marketplace.  However, Florida has long viewed non-compete agreements as a useful and enforceable tool for purposes of protecting legitimate business interests.  That being said, Florida law requires non-compete agreements to be limited in scope to be enforceable.   As such, employers and employees should be knowledgeable as to what is and isn’t enforceable prior to entering into a non-compete agreement.

The law sets out a few requirements for a non-compete to be enforceable.  First, the statutes say that any non-compete agreement must be in writing and signed by the person who will be bound by the restriction – no handshake agreements allowed.  Second, it must be reasonable in geographical boundaries and it must be reasonably limited in time.  Third, it must protect a “legitimate business interest” of the company that receives the non-compete (more on that later).

The following are examples of the two most contested issues with non-compete agreements:

  1. What constitutes a reasonable period of time for the restriction to remain in place?  The legislature sets out a guideline that says that any restriction on an employee that is six months or less in duration is probably reasonable, and any restriction longer than two years is probably not reasonable.  In practice, most courts have agreed to enforce restrictions on employees that are under two years in duration.
  1. What is a “legitimate business interest?”  The Florida Statutes helpfully set out many examples, including: trade secrets, confidential business information, substantial relationships, existing customers or specific potential customers, client goodwill, or specialized training.

A couple take-aways:

  1. If you are a current or a prospective employee, think very carefully about whether you will agree to sign a non-compete agreement.  If they are drafted correctly, they will be enforceable in Florida.  Especially in a field like real estate, where local knowledge matters a lot, it can be devastating to lose the ability to work in the locale where you are most knowledgeable.  It is worth considering the fact that non-compete agreements are just as negotiable as any other type of agreement, and that you may be able to “carve out” exceptions for pre-existing clients or for market areas that you already serve.
  2. If you are an employer thinking about requiring employees to sign a non-compete, first consider if it’s necessary.  After all, they are not commonly required in the real estate industry, and you may scare away great employees.  If you do decide to use non-compete agreements, be sure to have yours drafted by an experienced attorney.  Relevant case law seems to suggest that the courts will look for any reason to find them unenforceable.  A well drafted non-compete agreement can save the employer in a big way if enforce ability should be called into question.

As always, should you have any questions please feel free to reach out to your friendly neighborhood real estate attorney.

 

Sincerely,

Berlin Patten Ebling, PLLC

Article Authored by Dan Guarnieri, Esq. dguarnieri@berlinpatten.com

This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.

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