Understanding Non-Compete Agreements in Florida: Do They Hold Up?

What is a Non-Compete Agreement?

The concept of a non-compete agreement may be familiar to many, but for those who are unfamiliar, non-compete agreements are a provision or clause that may be included in an employment contract. The intent of a non-compete agreement is to restrict a former employee from joining a competitor, stealing business secrets, or working in the same industry field for a competitor , during or after employment, depending on when the agreement was executed. Typically, this agreement is signed at the time an employee is hired or while he or she is still working for the employer, but may be signed at a different time. Non-competes are made enforceable in Florida as part of an agreement where there is a legitimate business interest and a good reason for the agreement.

Are Non-Competes Legal in Florida?

Non-compete agreements are a divisive issue in the lawyer community. Some lawyers view them as a necessary protection for their clients’ interests, while others see them as an improper restraint on competition. As with many issues that divide lawyers, the truth lies somewhere in between these positions. Non-competes can be both proper and beneficial in some circumstances. On the other hand, there is a certain segment of lawyers that apparently feel that non-competes are never permissible. At the offensive end of the spectrum, some lawyers have been known to advise clients to take actions that lie on the edge, or even over the line of, Florida’s prohibition on tortious interference with a non-compete agreement (see Fla. Stat. § 542.335(1)(e)). Taking all of this into account, it’s apparent that Florida lawyers tend to be pretty polarized when it comes to non-competes. It’s no wonder, then, that few lawyers take time to study the state-law sources and controlling case law governing the enforceability of non-compete agreements in Florida. So, here goes . . . The primary sources of Florida non-compete law are Florida Statutes 542.335 and 542.336. These statutes permit non-competes in consideration of (1) the sale of a business; (2) the involvement of highly specialized skills; or (3) in certain employment situations. Other Florida statutes address non-competes in the context of the sale of professional practices (Fla. Stat. § 542.335(1)(a)(1)-(3)) and physicians with hospital privileges (Fla. Stat. § 542.335(1)(c)). Beyond these statutes, the determination of whether a non-compete will be enforced in Florida rests with the state courts. Generally speaking, non-competes are routinely scrutinized in Florida, especially terms like "reasonableness" or "necessary for protection of legitimate business interest." Florida courts also routinely review the scope of such agreements, including the time period, geographic area and activity restrictions. One of the most important decisions governing Florida non-competes is that of the Florida Supreme Court in Dade County v. Ruiz, 215 So. 2d 37, 41 (Fla. 1968). Ruiz stands as the seminal non-compete decision in Florida and its influence in this area can hardly be overstated. In Ruiz, the court set forth a two-part test for determining the enforceability of a non-compete agreement. The first part of the Ruiz test requires a non-compete to be valid if it furthered a legitimate business interest. To meet this requirement, a non-compete must be: (1) Necessary for the protection of a legitimate business interest; (2) Reasonable in time, area and line of business restriction; and (3) Not detrimental to the public interest. The second prong of the Ruiz test requires a non-compete to be enforceable if the restraint is reasonable and creates an equitable balance between the interests of the employee and the employer, so that neither is unfairly prohibited from pursuing its legitimate interests. Classic Ruiz definitions have been reaffirmed by later Florida Court decisions, including: HCA Health Services of Florida, Inc. v. Zeuske, 842 So. 2d 791, 794-95 (Fla. 5th DCA 2003) and Hollis v. E. Atlantic, 652 So. 2d 1212, 1215 (Fla. 2d DCA 1995).

How are Non-Competes Enforced?

For a non-compete agreement to be enforceable under Florida law, it must meet two key requirements. First, the non-compete must be "reasonable in time and area." A non-compete agreement generally is reasonable in duration if it restricts the employee from competing for a length of time that is determined to be reasonable in the industry in which he worked. A provision that prevents an employee from working in a particular field forever would not be reasonable, unless it can be shown that the nature of the employer’s business requires such an extensive restriction. In most cases, restrictions for more than two years are considered unreasonable in duration.
Courts also will consider the effect that the restriction has on the public. For example, a non-compete restriction that effectively precludes a person from participating in an occupation that is very narrow and specialized or where there is a shortage of qualified employees for the positions is likely to be considered overly burdensome and thus unreasonable.
The scope of the restriction as to area is also considered important. The area of a customer shall be deemed to extend to the county or counties in which the customer is serviced by the employer. Depending on the nature of the work performed by the employee, a larger area may be necessary. If the area in which the employee worked was relatively small, a larger geographic scope may be appropriate.

Recent Case Law

In Skye v. HomeSmart, LLC, 6:20-cv-01684 (M.D. Fla. Jan. 15, 2021), the Middle District of Florida found that a non-compete agreement restricted to the counties of Orange, Osceola, Polk, and Seminole Counties was void as not being supported by adequate consideration. While Skye is only one entry in a growing case law body concerning non-compete agreements affected by the COVID-19 pandemic, this recent decision highlights that, notwithstanding an apparent relaxation of the rules concerning the enforceability of non-compete agreements, the basic principles that non-compete agreements are not valid in perpetuity and must be reasonably limited cannot be avoided.
In Skye, the employer had three companies doing business together in multiple states. Skye went to work for one of those companies, HomeSmart. The agreement between the parties was the same in all material respects. It contained a three-year duration and a geographic restriction of the counties of Orange, Osceola, Polk and Seminole, which the parties agreed were the "principal counties" in which the parties conducted business. The Court held the agreement was a de facto statewide agreement because HomeSmart did not conduct business in all of Florida’s counties.
The Court noted that, while the agreement was between Skye and HomeSmart, it contained in material respects the same restrictions that were in the Skye’s agreement with the other company, HomeSmart Success. The Court also noted that the accounts identified in the agreement’s attached schedule were not limited to just those four counties. As a result, the Court was left with the "irrefutable conclusion . . . that the non-compete was actually a statewide franchise non-compete with respect to all of HomeSmart’s operations in Florida," and Skye’s argument that the agreement was limited to the four counties where he worked failed. As a result, the Skye agreement failed under Florida law because a covenants in restraint of trade should not impose a restraint greater than necessary to protect the legitimate business interests of the person interested.
In M Servs., LLC v. Farahani, 2020 U.S. Dist. LEXIS 183190 (D. Nev. Oct. 2, 2020), the District of Nevada dismissed a challenge to the enforcement of a non-compete between an employer and a pharmacist. There, the court granted the employer’s motion to compel arbitration and dismissed the employee’s claims for injunctive relief regarding the enforceability of the non-compete agreement. The Court based its decision on the employee’s waiver of his right to seek injunctive relieve or seek review of the arbitrator’s decision in any court, rather than on the merits of the issue, and specifically stated "this Order is without prejudice to Plaintiff pursuing its requests for injunctive relief following arbitration."

Avoiding Non-Competes

Employees often challenge a non-compete, either before it’s signed, or after it’s been violated. Common challenges include: (i) the non-compete not being consistent with an employment offer or other promises made by the employer, or (ii) that the restrictions in the non-compete are overbroad or too long. The location of the restrictions is often an important issue. For example, if you work in Coral Gables, but your employer has its office in New York, and you are asked to sign a non-compete that precludes you from working for any employer, anywhere in the United States, to within 2 miles of your present employment, that non-compete is likely to be unenforceable – unless they can show that the restrictions are reasonably necessary to protect a legitimate business interest. That is, if you will be working at the New York office, they probably don’t have a legitimate business interest in prohibiting you from working for any employer, anywhere in the U.S., to within 2 miles of the Coral Gables area where you used to work. Courts are often called upon to enforce, or void, some non-compete agreements , which results in lengthy litigation. When that occurs, an employer may have the burden to show why the non-compete restrictions in the non-compete agreement are no greater than reasonably necessary to protect a legitimate business interest to be protected. For example, deciding whether the non-compete is enforceable when it limits your right to work in a particular business, in any state you wish, for up to 2 years, following your employment with the stating employer. An employee seeking to prove a non-compete is unenforceable would bear the burden to show that the non-compete is unreasonable in terms of time, geographic scope, or scope of activities. Although Florida Statute, Section 542.335(1)(a), provides a non-exhaustive list of legitimate business interests a non-compete can seek to protect, it does not provide the burden-shifting scheme for the court described above. The "burden shifting" approach described above is recognized in other states like Alabama, Texas, South Carolina and Mississippi, although courts in those states differ as to what party has the initial burden.

What to Consider Other than Non-Competes

In some cases however, the employer still wants to protect its business interests, but has no legitimate need for a non-compete agreement. In such cases there are many other types of restrictive contracts that the employer can have executed to help continuing needs for confidentiality, or to restrict post-employment activities of the employee that do not impact competition.
Other than a formal non-compete agreement, the employee’s interest in confidentiality/trade secrets should be adequately protected through a well-written employment agreement provision stating that all confidential information of the company is owned by the company. That the employee must keep such information confidential both during and after employment is usually all the company needs to protect itself. Usually a letter outlining the legal obligations of employees regarding the company’s confidential information will be sufficient.
Employers may also utilize non-solicitation agreements to prevent their former employees from soliciting their old co-workers or former customers. In many cases, these types of agreements are better than non-competes in that they are focused on one narrow issue, either solicitation of employees or of customers, only. These terms are usually referred to as non-solicitation of employee and non-solicitation of customers. Both terms, which may or may not be combined in a formal agreement, are intended to prevent a former employee from reaching out to an old friend who may have been a good employee at the old company and perhaps invite him to work somewhere else, or to prevent the ex-employee from reaching out to former customers of his former employer to invite them to move their business to another company.
Another potential agreement type that may be ousting employers in Florida for certain types of specialty businesses is called a non-disclosure of customer list agreement. Under Florida Statute Section 542.335, post-employment restrictions on former employees are enforced only when necessary to protect trade secrets and may be unreasonable (and thereby invalid) unless the restriction is for two years.
Bottom line: Any contract that involves a restriction of a former employees’ activities must be carefully drafted and should be reviewed with legal counsel before it is executed. The agreement should be as tailored to the particular employer’s circumstances as possible and should contain the least amount of restriction possible to achieve the employer’s business goals. Any such agreement should not include any of the old "standard" restrictions; over-broad restrictions are more commonly being challenged by employees today. Since such an agreement has the ability to greatly effect an employees job opportunities and ability to earn a living, the stakes are very high for both the employer and employee, and earlier pre-employment advice and legal review is highly recommended for any restriction.

Tips for Employees

In order to know whether you are signing something that you can later seek to have declared invalid, you need to know whether the agreement is an "employment contract," as discussed above. If you have a written employment contract with your employer and it contains a non-compete clause, you may be able to show that it is not enforceable.
If you do not have a written employment contract, you probably have what Florida law refers to as "at will" employment. In those cases, you are generally presumed to be free to quit your job and free to accept employment elsewhere, no matter what your non-compete agreement says.
We have always found it useful to commemorate the precise moment of hiring, so bring a witness to your signing ceremony. It’s important to know whether someone saw you leave your job that day. It’s even better to refuse to sign until the date . Likewise, be sure that the person looking at the contract on the other side of your desk is authorized to do so. If you see someone trying to negotiate from the other side of the table, "Jones got $8,000.00 to sign last year in exactly the same position!" — you should draw a red flag.
And finally, if you’re asked to sign a non-compete (or even just a confidentiality agreement) the same day that you begin work, it’s a good idea to ask your attorney to look it over. When an employer makes this kind of demand, it’s usually because it has something to hide — like the fact that it is foreclosing your legal ability to work elsewhere while it’s paying you nothing at all.
Small employers may not use written agreements at all. If you work for a small employer, even one with an explicit non-compete policy, you may have only been told of the policy verbally.