A non-compete agreement is a legal contract or provision that prohibits an employee from competing with the employer after their employment ends. The most common non-compete agreement restricts the employee’s ability to work in a similar industry or start a competing business within a certain geographical area and for a specified period after leaving the company.
How Do Non-Compete Agreements Work?
Non-compete agreements are recognized and enforceable under Florida law. Florida Statute 542.335 provides standards for enforceable non-compete agreements. The standards are generally more favorable to the enforcing party (usually the employer) than in many other states.
The Statute provides that if an employee violates the terms of the non-compete agreement, the employer may seek an injunction to stop the employee from continuing the violating behavior, or the employer may recover damages for any losses it suffered due to the breach.
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Benefits of a Non-Compete Agreement
Non-compete agreements can be valuable tools for businesses in Florida. Businesses often have proprietary information crucial to their competitive position, such as unique business strategies, technical knowledge, manufacturing techniques, or specially developed intellectual property. A well-drafted non-compete agreement can help prevent employees from sharing this valuable information with competitors.
Most successful businesses spend substantial resources of time and money training key employees. The employes gain the skills necessary for success in their employer’s commercial space. The employer does not want their own experienced employees to take the knowledge gained through employment to a competing company. Non-compete agreements prohibit employees from exploiting work experience for the benefit of a business competitor and giving the competitor an unfair advantage.
Finally, non-competes also help businesses retain valuable employees. Employees may be less likely to leave if they know they can’t immediately go to work for a competitor.
Enforceability of Noncompete Agreements in Florida
Florida law does not permit non-compete agreements whose sole purpose is to prevent competition and agreements that unreasonably inhibit a person’s inalienable right to work. An enforceable agreement must include only reasonable employment restrictions and must relate to a legitimate business interest of the employer:
1. Reasonable restrictions in time, area, and line of business of employment. The agreement must not excessively restrict an employee’s ability to earn a livelihood. What is considered a “reasonable” scope of a geographical and time employment prohibition depends on the unique facts of each case. For example, courts have often held that state-wide restrictions of up to two years may be reasonable.
2. Legitimate Business Interest. The employer must demonstrate that the non-compete agreement protects a “legitimate business interest,” as Florida law defines. The Statute provides a non-exclusive list of legitimate business interests that warrant employment restrictions. The list includes valuable trade secrets, substantial relationships with existing or prospective customers, specific training, or extraordinary or specialized knowledge.
3. No public harm. The enforcement of the non-compete agreement should not harm the public. For instance, if enforcing the agreement would create a shortage of a particular job in an area, the court may deem the agreement unenforceable.
Elements of a Noncompete Agreement
Non-compete agreements used by large businesses are usually standardized across all their employees. Smaller businesses, however, may customize non-compete provisions to fit the specific employee relationships, business interests, and business environment. Here are some of the key elements to consider when drafting an enforceable non-compete agreement in Florida:
- Parties Involved. Clearly define the parties involved in the agreement – the employer and the employee.
- Legitimate Business Interest. The non-compete agreement must protect the employer’s legitimate business interest. A properly drafted non-compete provision should state the business interest being protected. It is best to identify a legitimate interest recognized by the Statute, but courts have held that additional interests are legitimate under the facts of a particular business and industry.
- Reasonable Restrictions. Non-compete agreements cannot overly restrict an individual’s ability to seek employment. Make sure that the restrictions are reasonable and that they do not impose an undue hardship. For example, a non-compete clause restricting someone from working in the same industry indefinitely nationwide would not be considered reasonable.
- Consideration. The employer must give the employee consideration, or something of value, for the employee’s agreeing to a non-compete restriction for the agreement to be enforceable. For a new hire, the job itself may serve as consideration. For an existing employee, some form of additional benefit or compensation may be necessary.
- Duration. Specify a reasonable time period for the restrictions. In Florida, for most industries, a non-compete agreement can be enforced for two years.
- Geographical Scope: The geographical area where the restrictions apply must be defined and reasonable. The non-compete agreement shouldn’t prohibit the employee from working in areas where the company doesn’t operate.
Contesting Noncompete Agreements
An ex-employee can go to court to challenge the enforceability of a non-compete agreement. If the employee demonstrates to a court that a non-compete agreement is unreasonable, overly broad, or against public policy, the court may invalidate some of or the entire non-compete provision.
Courts have the discretion to revise non-compete agreements to make them more reasonable and thus enforceable. This could involve reducing the geographic scope or duration of the non-compete agreement.
Noncompete Provisions in Operating Agreement
A non-compete provision can be included in an LLC operating agreement. These provisions are designed to protect the LLC’s interests by preventing members from engaging in other employment or business ownership that could compete with the company’s business.
Non-compete clauses in LLC operating agreements should specify a geographic scope, duration, and type of business activity that the member is excluded from. For example, if an LLC is involved in a specific type of retail business in a certain city, a non-compete clause may reasonably prevent members from starting or participating in the same type of business in that city for a certain period of time after leaving the LLC.
How does a non-compete agreement work in Florida?
In Florida, non-compete agreements are legally binding contracts that restrict an individual’s ability to engage in a competing business or work for a competitor within a specific geographic area and for a certain period after leaving an employer. These agreements must serve a legitimate business interest, such as protecting trade secrets or retaining valuable clients, and be considered reasonable in duration, geographic scope, and line of business to be enforceable. Florida law is generally favorable to enforcing non-compete agreements, provided they meet these criteria and do not impose undue hardship on the employee.
Are non-compete agreements enforceable in Florida?
Non-compete agreements are enforceable in Florida if they meet certain requirements. Florida Statute 542.335 governs the enforceability of non-compete agreements.
Under this statute, non-compete agreements must be in writing and signed by the person against whom enforcement is sought. They must also protect one or more of the employer’s “legitimate business interests,” which include, for example, trade secrets, confidential business information, or substantial relationships with specific prospective or existing customers, patients, or clients.
The restrictions imposed by the non-compete agreement, such as its duration, geographic area, and scope of prohibited activities, must also be reasonable.
How long is a non-compete agreement valid in Florida?
In Florida, most non-compete agreements are limited to two years. In the case of a sale of a business, a restrictive covenant is presumed reasonable if it’s effective for no more than three years following the sale.
What voids a non-compete agreement in Florida?
A non-compete agreement in Florida is voidable if it is unreasonable in geographic scope, length of time, or type of business it restricts.
How much does it cost to get a non-compete agreement?
A non-compete agreement by itself costs between $500 and $1,500. A non-compete agreement is often baked into the LLC operating agreement or employment agreement.
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