What Are Legitimate Business Interests and What Does that Have to Do with My Florida Non-Compete Agreement?
If you’re like many employees working in Florida, you may have signed a non-compete agreement at some time during your employment. Commonly, employees are asked to sign a non-compete as part of their offer of employment letter. Even sometimes, the non-compete agreement is contained within the Employee Handbook and part of what you sign in your initial employment package.
In Florida, restrictive covenants in employment contracts are governed by Florida Statutes Section 542.335. This statute also clarifies that, in order to have a restrictive covenant in an employment contract, a Florida employer must be able to show that there is at least one legitimate business interest that justifies the use of the restrictive covenant.
In order to understand exactly what we mean, you will need to know more about a few terms. Specifically, what is a restrictive covenant? And what is the relationship between a restrictive covenant and a non-compete agreement?
What is a Restrictive Covenant, and How Is It Connected to a Non-Compete Agreement?
Generally speaking, there are three different kinds of restrictive covenants that can appear in employment contracts: non-compete agreements, non-solicitation agreements, and non-disclosure agreements. A non-solicitation agreement usually restricts an employee’s ability to solicit employees or customers in a certain manner, while a non-disclosure agreement prohibits an employee from disclosing information about the employer, such as trade secrets.
A non-compete agreement, differently, restricts an employee’s ability to compete (typically with the employer) for a certain period of time and sometimes within a specific geographic region. In other words, a non-compete agreement is designed to prevent the employee from competing with the employer in some capacity. What does a non-compete agreement have to do with “legitimate business interests”? In brief, if an employer uses a restrictive covenant in an employment contract—including a non-compete agreement—it must justify the restrictive covenant by proving that it has one or more “legitimate business interests” that justify the use of the restrictive covenant. If an employer wants to put a non-compete agreement in an employment contract, it needs to have a legitimate business interest that justifies the use of that non-compete agreement.
What is a Legitimate Business Interest Under Florida Law?
The statute defines a number of items as “legitimate business interests,” including but not limited to:
- Trade secrets;
- Valuable confidential business information that is not a trade secret;
- Substantial relationships with specific prospective or existing customers, patients, or clients;
- Customer, patient, or client goodwill associated with the employer’s ongoing business or professional practice, specific geographic location, or specific marketing or trade area; and
- Extraordinary or specialized training.
Under Florida law (Fla. Stat. Section 542.335), for a non-compete agreement to be enforceable, the agreement must be supported by a legitimate business interest. The statute lists the legitimate business interests we mentioned above, but courts can also determine that there may be other legitimate business interests that are not specifically addressed in the statute. For instance, in Balasco v. Gulf Holding, Inc., the court determined that “promoting productivity and maintaining a competent and specialized sales team” can be a legitimate business interest that supports enforcing a non-compete agreement.
What else can be legitimate business interests according to Florida case law? Although the statute does not specifically identify “referral sources” as one of the legitimate business interests that ensures a non-compete agreement is enforceable, in White v. Mederi Caretenders Visiting Services of Southeast Florida, the Florida Supreme Court recently clarified that a company’s investment in training employees and providing access to referral source databases can be a legitimate business interest, and thus a reason for enforcing a non-compete agreement. The court underscored that not all referral sources necessarily constitute a legitimate business interest. More precisely, courts must determine whether a referral source is sufficient to support a non-compete agreement, looking at “the context and proof adduced” as the court engages in “inherently a factual inquiry, which is heavily industry—and context—specific.”
What about non-compete agreements entered into between a Florida-based employer and a resident of another state? It is certainly possible that Florida law can bind a resident of another state to a non-compete agreement. In Allied Universal Corporation v. Given, the Florida Third District Court of Appeal determined that a Florida non-compete agreement was enforceable against a Georgia resident.a
It is also important to note that the burden is on the employer to show that there is a legitimate business interest. As the Florida Second District Court of Appeals held in Gould & Lamb, LLC v. D’Alusio, unless the employer can show a legitimate business interest, then the court will determine that the non-compete agreement is unenforceable.
Commonly, issues about non-competes arise when an employee is leaving their employer and going to work in a competitive capacity. However, employees should not wait until that time period to start thinking about their non-compete. The best approach to non-competes is for a review before you sign your agreement, especially as they can be enforceable in Florida and sometimes up to a two year time period after your separation of employment.
If you have questions about non-compete agreements and legitimate business interests, negotiating your non-compete, or enforceability of the agreement, you should discuss your concerns with a Florida non-compete attorney.