non compete agreement is where one party (often the employee) agrees to not enter into contract or participate in trade practice of profession that competes with another party (often the employer). It is a legal term valid under Contract Law in the United States Court. Also known as a covenant, not to compete (CNC) or non-compete clause; these types of agreements are bound by conventional contract laws including elements such as consideration. However, States, such as the State of Florida, has codified certain laws which provide enforceability of non competes, as well as certain restrictions.
The Need for Non compete Agreements
Increasing number of employers nowadays require their employers to sign CNCs owing to the increasing competition and the continuous threat of loss of customers. This agreement ensures that employees do not work for employer’s competitors for a specified time period – usually minimum of a year.
CNCs are used to protect the trade secrets for employers. Multinational companies and big market corporations with cut throat competition utilize CNCs to avoid jeopardizing their interests.
Here are a few reasons why Noncompete Agreements are useful to an employer:
- Prevents loss of employees – It increases employee loyalty by making sure that trade secrets are protected for a minimum time period.
- Protects loss of confidential information – Often, a company’s ‘secret weapon’ are the innovative business processes that they make use of. This confidential information remains protected by CNCs.
- Gives competitive edge – Trade secrets of the business are its prized possession, that they have made considerable efforts to protect. Such patterns, methods, devices, programs, etc. endow the company with a competitive advantage over the rest.
Noncompete Agreements in Florida
Some states in the USA favor noncompete agreements whereas some do not. Florida law has some exceptions. The exceptions include the noncompete agreement that meet certain requirements as listed in the Florida Statute 542.335. This statute governs the functioning of noncompete agreements that came into existence after the year 1996.
The requirements of the statute are as follows:
- Time, line of business and area – as mentioned in the agreement, should be reasonable to meet a legitimate business interest of the employer. IN other words, the agreement cannot be enforced simply for the sake of enforcement.
- Business interests prompting the agreement should be legitimate in nature.
- The CNC should be considerably necessary to protect these interests
In addition, the statute also mentions a list of ‘legitimate business interests’, such as:
- Business information confidential in nature
- Trade secrets
- Relationships with prime and/or existing customers
- Extraordinary training
Essentials of a non compete Agreement
Having a non compete agreement is useful to employers in most circumstances. However, if it ends up being too restrictive or lacks substantial reason, it is likely to put the company in a difficult legal position to enforce. Take a look at the 2 essentials of a CNC:
1. Legitimate Business Reason The legitimacy of the reason for the agreement is an important concern. The aim of the agreement should not seem punishment to the employee, rather protection of employer interests.
2. Employee Benefit Providing an incentive to the employee work two ways – it acknowledges the performance of the outgoing employee as well as establishes the validity of the agreement. Contingent job offer for the outgoing employee or any such benefit is usually acceptable.Additionally, in order to enforce a non compete agreement, the employer must have clean hands.
This means that the employer, in order to enforce the agreement, must not have breached any significant terms of the employment relationship. This is called a prior breach defense which is one of the most common ways which employees overcome the enforceability of a non compete agreement.
Under Florida Law, a non compete agreement permits a prevailing party to recover all its attorney fees and costs. Therefore the stakes are high. A prevailing employer can force the employee not to work for its current employer and have a judgment entered against the employee for all of the employer’s legal fees and costs. If you are faced with a non compete, it is very important for you to seek the advice of a qualified attorney experienced in employment law to protect your interests.