More on Non-Competes in Florida: Defining the “Legitimate Business Interest”

In researching and writing Monday’s blog post, I came across another unique wrinkle in the Florida statute that governs covenants not to compete, § 542.335 of the Florida Statutes.  I think it's worth examining that provision in more detail as part of our ongoing efforts to educate employers and employees as to the varying state-by-state nuances in different jurisdictions that can affect the ultimate questions as to whether and how that state will enforce an employee’s covenant not to compete.

You may recall from Monday’s post that a New York appellate court recently held that the Florida statute was “truly obnoxious” to the public policy of New York and therefore would not apply to a lawsuit brought in that state – even though both regimes ostensibly follow the LBI test common to the overwhelming majority of U.S. states.  Essentially, the New York appellate court concluded that Florida statute was too friendly to employers (and, by extension, too harsh on employees) by specifically excluding any consideration of individualized hardship and by requiring that the clause be construed in favor of enforcement.

However – as is often the case in noncompete law – the full picture isn’t quite so one-sided.  Today, we’re going to look at an aspect of the Florida statute that uniquely favors employees by providing them another avenue by which to challenge the enforcement of an otherwise-valid noncompete clause.  We take our cue from the case cited briefly on Monday:  Passalacqua v. Naviant, Inc., 844 So.2d 792, 795 (Fla. DCA, 4th Dist. 2003), which dealt with subsection (1)(b) of the Florida statute.

The employer at issue in Passalacqua, Naviant, is a provider of third party “opt-in e-mail marketing services” to companies that sell goods and services over the Internet.  844 So.2d at 793.  Naviant hired Passalaqua in 2002 and required him to sign a two year non-compete agreement which specified that he would not “engage in a business in the continental United States that is the same or similar” to Naviant’s.  Id. at 794.  Notwithstanding the clause, Passalaqua left Naviant after just a few weeks on the job to start up a direct competitor to Naviant, which he called “E-Mail Analytics, Inc.”  Id. at 793-94.  Naviant sued Passalacqua and won at the trial court level; that court issued an injunction prohibiting E-Mail Analytics from “engaging in competition” with Naviant.  Id. at 794.

However, on appeal, the Florida appellate court reversed, holding that Naviant had failed to comply with § 542.335(1)(b) of the Florida Statutes, which requires that:

(b) The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant.

(emphasis added)

The statute goes on to define LBI as including (but not limited to):  (1) trade secrets, (2) valuable confidential business or professional information; (3) substantial customer relationships; (4) goodwill such as a recognizable trademark or trade name; and (5) “extraordinary or specialized training.”  Id.  Finally, that subsection concludes that any noncompete clause “not supported by a legitimate business interest is unlawful and is void and unenforceable.”  Id.

The appellate court in Passalacqua then held that Naviant had failed to meet its statutory burden of pleading and proving a legitimate business interest.  Specifically, the court rejected Naviant’s testimony that it had developed a “unique methodology” for developing customers, holding that the company failed to “articulate how any activity, method or technique utilized by Naviant was unique or proprietary in any way.  Nor did [Naviant] give any reason to believe that the manual was anything but a compilation of widely known and commonly used sales techniques.”  Passalacqua, 844 So.2d at 796. 

We can’t know how Naviant and Passalacqua might have fared had this lawsuit been brought in New York (or Connecticut, or Maryland, or any other LBI jurisdiction).  What we do know, however, is that in those states, the interests of the employer is typically just one of many factors the court will attempt to balance in evaluating the enforceability of the clause instead of a mandatory prerequisite which the employer “shall plead and prove” as a threshold matter.

What this means in practical terms is that an employer with even a minimal interest to be protected might be statutorily prohibited from enforcing its noncompete in Florida, but might well succeed in enforcing the exact same clause – on the exact same facts – in a different LBI jurisdiction (such as New York), so long as the overall burden on the employee was comparatively small.  (Naviant’s two-year, nationwide noncompete almost certainly wouldn’t qualify, but that’s not really the point.)

As a result, it’s an oversimplification of Monday’s post to conclude that New York’s LBI regime is pro-employee and Florida’s tilts towards employers.  Rather, the point is that even though both states have roughly the same law, the specifics of that law can be applied in ways that result in a noncompete clause’s enforcement in one jurisdiction but not in another.  Knowing those differences is the key.

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• Noncompete Agreements ‎