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Recent Noncompete Decisions Favor Employees

Tue December 1, 2015 Publications

Recently, state and federal courts have issued precedent-setting decisions on noncompete claims filed under Section 542.335, Florida Statutes (2015) which reversed the preliminary injunctions issued by the lower courts.

In late October, the Fifth District Court of Appeals found a company’s business relationship with a former client did not qualify as a “legitimate business interest,” due to the absence of an “exclusive contract” or other reasonable expectation that the relationship would continue. Evans v. Generic Solutions Engineering, LLC, 2015 WL 6554429 (Fla. 5th DCA, October 30, 2015). There, Generic Solutions d/b/a Tech Guys (“Tech Guys”) was in the business of optimizing automated online sales and marketing for its clients. Chinn, an independent contractor of Tech Guys, had signed a noncompete agreement expressly prohibiting him from working for the Tech Guys’ current or former customers for two years after leaving the company. RRI was a large customer who generated substantial revenue for Tech Guys from 2008 through 2013. However, RRI did not have an exclusive relationship with Tech Guys and, through competitive bidding, had “hired a number of Tech Guys’ competitors to provide essentially the same services during this same time.” When Chinn left Tech Guys, he formed his own company, X-Tech, which began providing services to RRI who then became a former customer of Tech Guys. RRI had offered to do business with Tech Guys at “industry standard rates,” but Tech Guys had refused. The lower court issued a temporary injunction which the district court reversed because Tech Guys’ relationship with RRI did not qualify as a “legitimate business interest,” as required by Florida law to support enforcement of a restrictive covenant.

Earlier, in August, the Eleventh Circuit held that Section 542.335(1)(g)(1), did not prevent the Court’s consideration of the individualized economic hardship that may be caused to the person against whom a restrictive covenant is enforced, except in determining the enforceability of the restriction. The court vacated the district court’s order granting the preliminary injunction in favor of a Florida employer, where the district court had failed to consider the potential hardship to the employee when the court balanced harms under Rule 65, the federal rule on injunctions. Transunion Risk and Alt. Data Solutions, Inc. v. MacLachlan, No. 15­ 10985 (11th Cir. Aug. 27, 2015)(unpublished). Rule 65 requires the court to consider, among other things, whether “the
threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party.” Rather than do so, the lower court applied Section 542.335(1)(g)1 to preclude consideration of the hardship to the employee when balancing the harms under Rule 65. Section 542.335(1)(g) 1 provides:

(g) In determining the enforceability of a restrictive covenant, a court:

  1. Shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.

Section § 542.335(1)(g)(1) (emphasis supplied). Pointing to this section’s “framing, content and position” in the overall statute, the Court held that “Section 542.335(1)(g)(1) governs the enforceabilty of restrictive covenants, not the enforcement of an already enforceable covenant.” (emphasis in original) This consideration, according to the Court, “is directed to the determination of whether a restrictive covenant is enforceable” and not a determination of the appropriate remedy. Accordingly, this interpretation might be applied by state courts to allow consideration of the hardship on the employee when fashioning a remedy.

These two cases will be helpful to employees who has signed a restrictive covenant and the businesses who thereafter hire them, in defending against complaints by former employers seeking enforcement of restrictive covenants and issuance of preliminary injunctions.