Halloween Scares and Non-Compete Agreements

Halloween is always a great time for adults and children. Just think about it, for at least one night we intentionally abandon every notion we teach our children about taking candy from strangers, not acting deceptively, not scaring people unnecessarily and otherwise not acting like little hellions. Indeed, we encourage the opposite. Scary little monsters will roam my neighborhood seeking free candy from strangers who often try to frighten them. Under the pretense of nonchalance, parents will watchfully keep a respectful distance from all front doors as their children boldly explore what an unknown witch or werewolf might hand out as “trick” or “treat.”

And so it goes this season all around our great nation.

And so it goes in many an employment agreement as well. Many of our clients require their employees to execute a non-competition agreement as part of their continued employment. While not all states favor agreements that restrain trade (some essentially disallow non-competition agreements altogether), Florida has detailed statutes spelling out the requirements of a valid non-competition agreement and many cases considering the issue to help all parties involved determine how best to deal with a departing employee.

What remains unclear is whether or not the non-competition agreement in force is a “trick” or a “treat” to either the former employer or to the former employee, or to neither. The answer is that it depends on the circumstances. Florida law recognizes that under certain circumstances an employer has the right to protect its trade secrets, its customers and its remaining employees from the competition of departing employees. While this sounds as if it solely favors the former employer, under many circumstances the situation is ̶ to keep with the theme ̶ more tricky. Often the customers whom the former employer seeks to insulate prefer to continue to work with the former employee. We’ve seen circumstances where customers of the former employer actually pull their business because the former employer has initiated legal action against a former employee pursuant to a seemingly enforceable non-competition agreement.

So what is an employer to do? Remember Halloween. Even when it’s seemingly okay to “trick,” sometimes it’s better to offer a “treat.” In a recent matter, the former employer had a stock repurchase agreement in force for departing officers and managers. The repurchase agreement had a formula that discounted the share value for departing employees. The former employer also informed the departing employee that it intended to enforce the (rather restrictive) non-competition agreement. However, when the former employers’ customers complained about losing the person with whom they had forged a professional relationship, the former employer opted to enter into a consulting agreement with the departing employee rather than to initiate a lawsuit. The benefits of this were many and obvious. First, the former employer could mollify its customer and maintain continuity on the job. However additional benefits also resulted. For one, the former employer could both keep tabs on the former employee (and its customers) and at the same time profit from the continued relationship. A supplemental benefit was that it made any violation of the parties’ agreement other than through the consulting agreement seem all-the-more egregious. In that way, if the matter ever made its way to a courtroom, at least the former employer could argue that it took every possible step to act reasonably.

You might find yourself in a circumstance when there are better business alternatives available than simply initiating litigation to enforce a non-competition agreement. Even though it’s the Halloween season, don’t be scared. At Burr & Forman we have lawyers in offices throughout the Southeast that are experienced with these issues and able to advise you in even the most scary situation.

Derek Jeter Retires: Can He Compete?

For two decades Yankees fans and baseball aficionados everywhere have reveled in Derek Jeter’s statesmanship and poise. Jeter exemplified leadership. Despite having played alongside several teammates embroiled in controversy, Jeter remained above the fray. He spoke with his bat. He spoke with his glove. His ability to keep his tongue spoke loudly enough for all to hear. He was, as all baseball fans know, a fierce competitor. Yankees fans around the globe imagine a day when Jeter might return to the organization. Will he coach? Will he manage? Will he run the front office?

Jeter is not the first employee to retire after years of dedicated and valuable service. Nor is Derek Jeter a typical employee.   If a professional baseball team offered Derek Jeter the job of Manager ̶ any baseball team ̶ Yankees fans would likely collectively say “Good for you, Captain.”

This author is unaware of any instance in which a retiring baseball player was subject to a non-competition agreement. However not all successful retiring employees in Florida face as easy a path to continued success. Readers of this blog are well aware that under defined circumstances Florida law allows employers and employees to negotiate non-competition agreements that can restrict for a limited period of time the former employee’s future employment. Under Florida law, an employer and its employee can agree on future restrictions pertaining to location, specialty and time period. An employer and its employee can agree on what information constitutes a trade secret and on limitations to the former employee’s use of the employer’s trade secrets.

Can you imagine the trade secrets an athlete like Derek Jeter must possess? Insight on the various pitchers throughout the league could prove invaluable to a Yankees competitor. Jeter’s insight into the Yankees organization itself could prove invaluable to a Yankees competitor. Sure, professionals throughout baseball command high salaries to possess just such insight.   Professional scouts abound. Each Manager is aware of the characteristics of nearly every other player in the league. And yet how many of them has faced a 97 MPH fastball and deftly flicked it into right field with a runner in scoring position to win the game?

It’s true, an employer and employee in Florida can agree on limitations to the employee’s future employment upon his or her departure from a current job. If you’re subject to non-competition agreement in Florida and are restricted from working in your chosen field for a period of time, you need not panic. Rumor has it that a job is now available in the Bronx. The Yankees need a shortstop.

On the other hand, if you lack that particular talent and need legal advice on Florida non-competition agreements, make sure you call an attorney experienced in this area of the law. At Burr & Forman we have attorneys in nine offices throughout the Southeast experienced in dealing with these issues. And yes, Derek, we also need a shortstop…

Joan Rivers and Non-Competition Agreements: Can We Talk?

Sadly, Joan Rivers ̶ the famous comedienne who was perhaps best known for sitting down with celebrities and asking “can we talk?” ̶ died recently at the age of 81. Ms. Rivers’ self-deprecating nature and ability to use laughter to put people either at ease or to otherwise coerce them to divulge information often resulted in her getting the scoop. This unique ability allowed her to remain popular and visible for decades. And how, you might ask, does Ms. Rivers’ story relate at all to Florida non-competition agreements? To borrow a phrase: let’s talk.

If you have followed this blog (or merely happened upon it through an internet search) you likely already know that under Florida law the legal bases for non-competition agreements are found in the statutes under the name “Valid Restraints of Trade.” After all, that is exactly what a non-competition agreement does: it restricts, for a defined period, a former employee from working in a field that might compete with the former employer. The result is a “restraint of trade,” which is to say an obvious restriction on the future employment of the former employee. If drafted properly, a non-competition agreement is legally enforceable against the former employee. The question is: Does it always make sense for a company to litigate a potential violation of an otherwise valid non-competition agreement?

This is certainly a topic worthy of serious discussion. Courts strictly enforce non-competition agreements. When interpreting any ambiguities within these agreements, courts are also compelled to reach an interpretation that favors the former employee’s right to unrestricted work. This is an important factor to consider, because almost all non-competition agreements include a provision for the prevailing party in any enforcement action to have the losing party pay its attorneys’ fees and costs. As a result, what might look like a very strong case for a company against a former employee for violation of a non-competition agreement can turn into a prolonged and expensive battle over potential ambiguities in the agreement.

And now the benefit of talking: Ask yourself why your company wanted its employees to execute a written non-competition agreement. Did the employee’s potential departure pose a unique business risk to your company? Ask yourself what exactly it is you want to protect. Is there a specific trade secret at risk? Is there a client relationship at risk? If the overarching reason for the non-competition agreement is a client relationship, then consider whether the client will react positively to knowledge that your company initiated an action to enforce its non-competition agreement, thus potentially keeping the client from working with someone familiar? Once you answer these and any other relevant questions regarding the need and origin of your non-competition agreement, ask yourself one more. Ask yourself: “What is in the best interests of my company right now?” If, after consulting with your legal counsel and the company decision-makers, you remain confident that the best strategy is to quickly file an enforcement action, then the best thing to do is to secure competent counsel and to work with counsel to immediately set a company budget line-item specifically intended to fund the effort. On the other hand, sometimes the best thing about having your employees execute a valid non-competition agreement is your ability to negotiate a reasonable pay-out at the time of the employee’s departure. If you decide to negotiate instead of seeking to enforce, then the manner in which your company can benefit is often limitless. This is also the time when you can exercise an extreme amount of corporate creativity. Will a simple cash pay-out accommodate whatever pecuniary loss your company anticipates with the employee’s departure? Will your company benefit from entering into a joint venture agreement with the departing employee (presumably on favorable terms)? Is there a realistic opportunity to protect existing client relationships in the absence of the former employee? What is the value to the former employee to continue to work with your company’s (otherwise restricted) clients and contacts? In other words, talk it out within the company. You might discover that early interventional negotiation you will better serve the company’s overall goals than an often-unpredictable legal battle.

And so, back to Joan Rivers, sometimes it’s best to ask: “Can we talk?” Litigating a non-competition claim certainly sends a message to all departing employees that the company is willing to seek strict enforcement of its employer/employee agreements. It’s just not always your company’s best legal strategy.

This blog ends, like most others in this series, with some advice. When it comes to a decision of how to enforce a non-competition agreement, to drafting an enforceable non-competition agreement, or to litigating over the validity of a non-competition agreement, it’s necessary to arm your company with competent legal counsel experienced in these matters. At Burr & Forman we have experienced attorneys throughout the Southeast ready to address your questions and concerns.

Arbitration Panel Misconstrues Contractor Licensing Law: Court Allows Decision to Stand

If you’ve followed Burr’s e-note over the past year or two, then you know that the United States Supreme Court has issued recent opinions on the power of arbitration tribunals to make legal decisions.  Even if a review of the arbitration decision reveals an error in legal interpretation, the general rule of the land is that parties who contractually agree to resolve their disputes through arbitration accept the possibility that the arbitration panel may interpret the law or the facts (or both) in a final opinion that is very difficult to overturn on appeal.  A recent Florida appellate opinion on contractor licensure emphasizes this nuanced area of the law.

As background, Florida law is clear that a contractor unlicensed at the time of contract cannot maintain an action in a Florida court for unpaid work.  See 489.128(1), Fla. Stat. (2009).  Florida courts strictly construe these statutes.  As a result, litigants in Florida courts can anticipate that an entity that was technically unlicensed at the time it entered into the contract will have an uphill battle in a court of law trying to collect for unpaid work.

We also know that many construction contracts contain arbitration clauses.  A recent case from Florida’s Third District Court of Appeal wrestled with the conundrum of determining whether it had authority to overturn the decision of an arbitration panel that appeared to misconstrue Florida’s unlicensed-contractor law.  The Village at Dolphin Commerce Center, LLC v. Construction Service Solutions, LLC (Fla. 3rd DCA 2014).   In Construction Service Solutions the undisputed facts at arbitration showed that the contractor was not technically licensed under Florida law at the time of the contract.  Despite the fact that during the term of the contract the contractor cured the licensure defect, Florida law typically bars a contractor’s action for recovery of unpaid work when the licensure requirements were not met at the time of the contract.  The record also showed that neither the contractor nor the owner objected to the arbitration panel’s jurisdiction or authority to decide the issue.  If either side objected to the arbitration panel’s jurisdiction to decide the licensure issue, the AAA Construction Arbitration rules required the objecting party to object in the answering statement.  Both parties agreed to allow the arbitration panel to consider the issue.

Ultimately, the arbitration panel ruled in favor of the (technically unlicensed) contractor.  Unhappy with that decision, the owner sought a ruling from the Florida trial court seeking to overturn the panel’s decision.  The trial court refused.  Still unsatisfied, the owner appealed to the appropriate Florida appellate court.  The appellate court noted that Florida law would typically bar the contactor’s recovery.  Nonetheless, the appellate court further confirmed and upheld the arbitrator’s decision.

The Owner also argued that the arbitration panel had improperly neglected to consider the issue of the contract’s legality.  In the courtroom, the Owner argued that either (a) the parties never agreed to submit the lien claim to arbitration or (b) the arbitration award did not address the Owner’s affirmative defenses.  Id.  The Third District, however, agreed with the magistrate, holding that the enforceability issue was submitted to arbitration when the Owner filed its answer and raised enforceability as its first affirmative defense.  In its initial arbitration response, the Owner failed to dispute the scope of the arbitrator’s authority to decide the issue.  Id.

Despite an arbitration result that appeared to misconstrue Florida law, the Third District held that the parties willingly submitted to the arbitrator the issue of whether or not the contractor could legally enforce the contract.  Having chosen their preferred venue for dispute resolution, the parties were bound by the results.  And this isn’t a particularly unique position for Florida courts.  While the Florida Arbitration Act allows a court to review an arbitrator’s decision if the arbitration panel exceeded its authority, see Fla. Stat. § 682.13(1)(d), the Florida Supreme Court has refused to disturb an arbitration award for a “mere” factual or legal error.  See Schnurmacher v. Noriega  (Fla.1989).  The U.S. Supreme Court, not surprisingly, takes a similar stance.  SCOTUS’  well-known Buckeye Check Cashing, Inc. v. Cardegna (2006) opinion distinguishes challenges to the validity of an agreement to arbitrate from challenges to the validity of contractual interpretation.

The lesson is clear:  when agreeing to arbitrate a dispute, when responding to a demand to arbitrate, or when filing your formal response to an arbitration petition, it is imperative to analyze the scope of the arbitrator’s authority and to ensure the scope is in line with your client’s interests.  The other lesson, of course, is to make sure your lawyer knows this.  At Burr & Forman we have nine offices throughout the Southeast staffed with attorneys who routinely navigate these issues.

The World Cup of Non-Competes

Can you imagine if FIFA allowed or enforced non-compete agreements that limited the ability of a player to hold dual citizenship and play for either country?  Would the World Cup have suffered if brothers representing Ghana and Germany had to choose allegiance to only one nation rather than play against one another as respectful opponents?  For that matter, would the United States have survived the “Group of Death” and advanced to the knockout round if not for the array of talented “American” players who grew up in Germany, speaking German.  Whether or not the inclusion of these players aided America’s unquestionable success in this worldwide soccer feast (in case you’ve somehow avoided the news media for the last month, the answer is that “yes, these players were incredible assets for the US team”), you cannot deny that without the ability to utilize the best available talent, it’s difficult to put the best team on the field.

Which brings us to non-compete agreements in Florida.  If you follow this blog, then you already know that Florida law specifically allows employers and employees to enter non-competition agreements under circumstances set forth in Florida’s statutes.  As we’ve discussed many times, the more significant the employee is to the continued operational success of the business she intends to leave, the more restrictive a covenant not to compete she can expect. To continue the sports analogies, it’s a little bit like a no-trade clause in the contract of a professional athlete.  An athlete can leave a team at any time.  It’s just that the athlete cannot leave one team at his/her whim and join a competitor unless the contract allows it.

On the other hand, just like in professional sports, sometimes it’s better to renegotiate a contract than to fight over whether or not an employee is able to leave when an alternate opportunity calls.  In a recent matter, for instance, we represented a corporation that had hired an employee allegedly subject to non-compete agreement.  Our client testified under oath that it was completely unaware of the alleged non-compete agreement at the time of the hiring and terminated the new salesman almost immediately after the former employer filed the lawsuit (which was the first notice of the existence of the alleged non-compete agreement).  Despite the almost-immediate termination, the plaintiff continued the lawsuit against my client.  Instead of seeking an injunction, the lawsuit focused on alleged violation of trade secrets the short-term employee allegedly transferred.  After the parties endured a year of litigation, the matter settled.  Both parties might now agree that reaching an agreement earlier might have saved everyone involved significant time and resources.

Brazil hosted a splendid World Cup.  Its team advanced to the semi-finals until it ran into an indomitable German squad playing at its peak.  As an American soccer fan, it’s nice to know that as long as the rules remain the same, America’s team can benefit from the training some of our best players received in Germany.  As sports professionals, many of those players will join new teams, usually after the transferee team pays a considerable fee.  In the landscape of Florida non-compete agreements, things aren’t always as clear-cut.  When you’re faced with a non-compete question that can affect your business, be sure to consult with an attorney knowledgeable in that area of the law.  Burr & Forman LLP has nine offices in five states throughout the Southeast and a large team of professionals with non-compete experience.

My Non-Compete, Your Salary: Words of Caution for Business Owners and Employees

Without the ability to enforce it, a non-competition agreement can turn worthless, or ˗ perhaps far worse ˗ extremely expensive for an employer whose chooses to file litigation against a former employee.  One area that can turn tricky is the nuanced difference between a “dependent covenant” and an “independent covenant.”  Why does this even matter?  A recent Florida decision sheds some light on this issue.

In a scenario that will surprise no one who follows this blog, this story involves two high-level employees who left their former employer to start their own competing business.  Their employment agreements contained identical non-compete language.  (The differences in the agreements generally dealt with compensation.)  When the employees left to form a competing tower business, the former employer filed a multi-count complaint against them seeking an injunction, enforcement of the non-compete agreements, and damages.  The individuals and their newly-formed company filed a counterclaim seeking, among other things, a determination that the former employer’s prior breaches of the employment agreement (specifically, whether or not the former employer had properly compensated them during their tenure) rendered the non-competition agreement unenforceable.  (Richland Towers, Inc. and Richland Towers, LLC v. Tall Tower Ventures, LLC, et al., Fla. 2nd DCA, March 2014.)

Generally, under Florida law, when an agreement has several components and a variety of obligations from one party to another, one party’s breach of the agreement can cause the entire contractual relationship to terminate.  The logical argument, therefore, is that an employer’s breach of an employment agreement can result in the termination of the employment agreement.  To carry the logic of this argument one step farther: if the employer terminates the employment agreement, then under certain circumstances the employer would lose its ability to enforce the non-competition agreement against its former employee.  Makes sense, right?

As it turns out, whether or not the non-competition agreement remains enforceable is a matter of whether or not the former employer’s alleged breach was a dependent covenant or an independent covenant.  What’s the difference?  Well, for one thing, when a party breaches a dependent covenant “the entire contract is virtually destroyed.”  (See Steak House, Inc. v. Barnett, Fla. 1953)

Whether or not a covenant is dependent or independent is a legal question reserved for the court.  The general rule in Florida presumes dependent covenants.  That is to say, the entire contract is dependent on parties following each of the contract’s terms.  However, Florida law is also flexible in allowing parties to enter an enforceable contract that excludes this general interpretation.  In the Richland Towers matter mentioned earlier, the employment agreements contained “an explicit expression of a contrary intention.”  In fact, the non-competition agreement actually contained a paragraph entitled “Covenants Independent” that stated that “each restrictive covenant” was “independent of any other covenant or provision” of the agreement.

In the Richland Towers matter, the trial court denied the employer’s motion for the Court to enter a temporary injunction, and determined that because the former employer had not properly paid bonuses, the contractual non-competition agreement was unenforceable.  The appellate court reversed.  Based on the “Covenants Independent” paragraph discussed above, the appellate court found that ˗ whether or not the former employer properly paid bonuses ˗ the fact that the parties had contractually agreed that the restrictive covenants and non-competition agreements were “independent covenants” rendered them enforceable.

And the moral of the story is:  be careful out there.  In this case, the inclusion of a “Covenants Independent” clause allowed a former employer to retain the right to seek an injunction against former employees trying to compete within the same markets.  Without that clause, the allegation that the former employer failed to properly pay bonuses may have also led to the unenforceability of the non-competition agreement to which the employees freely agreed.  The scenarios can get complicated, and the litigation that results from these situations can put a financial burden on all parties involved.  Bottom line: if you need advice on how to draft your non-competition agreement, or with an issue attempting to enforce your non-competition agreement, be sure to seek legal advice from a professional familiar with this area of the law.

Burr & Forman LLP has offices throughout the Southeast with attorneys very familiar with these issues.

Peter Vilmos, is a Partner in Burr & Forman LLP’s Orlando office.

Ice Storms, My Secret Internet and Other Myths

Winter is around the corner.  On the calendar, however, it’s not yet here.  Surely Mother Nature is aware of this.  Still, an ice storm currently engulfs large swaths of our nation and is leaving many of us without power or heat.  If your new business was recently served with a lawsuit seeking an injunction against it to stop allegedly unlawful competition, then you can probably relate to those in the grips of the current storm.

The situation:  A successful closely held corporation sues a new competitor in its industry.  The complaint alleges that the new competitor hired a former employee with knowledge that the former employee and former employer had executed a non-competition agreement.  The complaint against the new competitor seeks an injunction.  If you’re familiar with this column, then you know that this scenario is rather commonplace.  Sometimes, however, the former employer/plaintiff can seek relief that a court deems unreasonable.  One such instance occurs with internet-based companies, or even with internet-reliant companies.

Here’s an example:  You own a company that sells goods over the internet.  You discover that your former employee is working for a new competitor seemingly in violation of his non-competition agreement.  Although there is no evidence that your business is damaged or will suffer damages as a result of the new competitor’s entry into the marketplace, your lawsuit seeks to enjoin the former employee from working for the competitor.  Your lawsuit also includes a claim against the new competitor for tortuous interference with your contract with the former employee.  So far, this legal action presents relatively straightforward issues.  Then you decide to make matters more complicated.

We often see former employers attempt to overreach when seeking damages.  You might, for instance, sue for alleged violation of trade secrets (claiming that the employee gave protected information to the new competitor).  Or you might sue for unfair and deceptive trade practices.  While this aggressive approach could potentially force the new competitor to agree to willingly close its business, it’s more likely than not that you’ve created a situation in which litigation (and associated litigation costs) could escalate.  Particularly with internet-based businesses, the capability to drive business to a particular website is seldom a secret.  While there are certainly professionals who claim that they can use unique search engine optimization (SEO) techniques to increase your exposure, many businesses discover that they can directly pay the search engines themselves to increase their traffic.  And that information is essentially available through the search engines for companies willing to pay for it.

As a result, your new competitor may actually get significant traffic to its website without ever attempting to steal your “trade secrets” in its efforts to do so.  Even if challenged, a “trade secret” that is dependent on information a search engine would otherwise make publicly available is difficult to uphold in court.  To some ˗ if your company is more financially capable of bearing the financial costs and personnel strain of the litigation storm ˗ this fight might seem worthwhile.  Consider, on the other hand, the possibility that if you lose in your efforts to prove unfair and deceptive trade practices you may actually have to pay prevailing party attorney’s fees and costs to the new competitor.  Why?  Because “deceptive and unfair trade practice” statutes usually contain clauses that allow courts to award prevailing party attorney’s fees and costs.  In other words, if the new competitor can hold on long enough to defeat your claim for deceptive and unfair trade practices, your company could end up paying your competitor’s legal bill (even if the court finds grounds to enter the injunction you sought).

Does that scenario denude or devalue your carefully drafted non-competition agreement?  No, it does not.  What the above scenario is intended to provide is a cautionary warning that when dealing with a pest, sometimes a fly swatter gives you a better result than a grenade.  Many times your well-pled motion for injunctive relief will achieve your business goals without having to prove the elements of the additional allegations.  Less cost to you, same effect on your newly-enjoined former-competitor.

Navigating the many laws and difficult language in the area of non-competition agreements can perplex even the most sophisticated business professionals.  This is the point in the blog when you are urged to seek refuge from this complexity with an attorney experienced in these issues and capable of both advising and litigating, if necessary.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

When Planning and Football Go Hand-in-Hand

As summer winds down and the temperatures cool, many parts of our economy and the business world tend to heat up.  The heat typically starts on the gridiron, where rabid fans of college football begin to analyze every important snap of every important play for their very important team.  The analysis continues for every snap of the rivals of their very important team (and perhaps some snaps of other conference foes or even – dare we suggest – the snaps of teams in other conferences).  My law firm opened its first office in Birmingham, Alabama more than 100 years ago and now has offices through the southeast.  Trust me on this: the heat starts on the gridiron.

College football aside, companies often want to conclude deals before the close of their fiscal year, or before the end of the calendar year.  Bank of America Merrill Lynch recently reported (amid questions of whether anticipated rising healthcare costs would impede growth) that “Economic optimism is the highest in five years, and global business abounds…”  Many companies assess their cash positions and take the opportunity whenever possible to purchase items at the close of the year in order to use the capital expenditure to reduce income taxes.  In the world of commercial litigation, summer schedules (and the inevitable summer vacations) give way to longer hours, increased numbers of evidentiary hearings and trials, and an array of settlement conferences and other forms of alternative dispute resolution intended to clear the slate of 2013 in preparation for the new business ahead.

Our clients typically take this opportunity to plan for the upcoming year.  Budgets are in the works.  Forecasts are made.  Among the forecasts is often the question: “Who will take over my business when current management decides to retire?”  And thus we segue into succession planning and the value of non-compete agreements to this discussion.

While a non-compete agreement is intended to ensure that a departing employee does not steal away to a competitor to the detriment of the former employer, it also provides an excellent opportunity to secure strong leadership in succession planning.  It goes without saying that an excellent employee who perceives little opportunity for future advancement is more likely to seek opportunities elsewhere than an employee who genuinely has an opportunity to advance within the company’s leadership.  When an employee’s contract limits the ability to compete within certain industries or within a certain geographic area for a defined period of time, the knowledge of that possible restraint can make the open door to advancement appear all-the-more attractive.

It is important, therefore, to regularly review your non-competition agreements.  Are there employees within your organization who are ready for more involved leadership positions?  Consider whether or not these employees are so vital to the business that their departure would immediately have a negative impact on the company’s bottom line.  Consider also whether the company would benefit from a planned, informed and intentional transition from current leadership to future leadership.  Although having a non-competition agreement in place is certainly no guarantee for a smooth transition from the existing regime to a company’s new leadership, the argument certainly exists that having a carefully drafted and impactful non-competition agreement in place can allow you to initiate important conversations without the fear that current employees will prematurely head for the doors.

Yes, the economy is heating up.  As is the football season.  If your company is also experiencing growth, consider this a good time to do some planning of your own.  If you believe it is important for your favorite football team to put together a game plan intended to defeat its weekend opponent, then you surely must also recognize the importance of planning for your own business.  This is the part of the blog where you are encouraged to seek a professional’s advice to discuss non-competition agreements and how they could impact and benefit your own business planning.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

It’s Not the Heat, It’s the Humidity

When you live in Florida, you tend to hear that expression for far too many months of the year.  Even during the winter, weather reports often include information on the “sun index” indicating the level of sunscreen you might need in order to survive your next trip to the local grocery store.  Visitors from the southwest, where temperatures earlier this month reached over 100°F, are quick to inform Floridians that it’s hot in Phoenix, “but it’s a dry heat.”

Well, if you’re looking for things other than the weather to make you sweat, you might take a look at your company’s policy on whether or not a departing employee can go to work for a competitor.  Presumably, your direct competitor will now reap the benefit of the many hours and significant financial commitment your business expended.  And as a business owner, you might ask: “What can I do?”  In many circumstances, your best business move is to protect your businesses’ interests with a carefully crafted non-competition agreement.

The rules for non-competition agreements vary from state to state.  Some states basically do not allow them (or greatly disfavor them).  Other states have no legislation concerning non-competition agreements, choosing instead to allow the legal system to define the issue on a case-by-case basis.  Indiana, for instance, recently allowed a five-year non-competition agreement, concluding that both the length of time (five years), and the restriction (a two county area) were reasonable.    See Mayne v. O’Bannon Publishing Co. d/b/a Corydon Instant Press.  In Florida, the legislature has created a statute that specifically defines the basic structure of contracts that Florida law allows to validly restrain trade.  Key among the allowed restraints of trade are non-competition agreements and limitations on the use of a company’s trade secrets after an employee leaves the company.

Although defined in the statutes, Florida law also requires that the courts interpret non-competition agreements in favor of the employee in those circumstances when the agreement is vague or missing terms.  Even when parties are careful to define terms in a non-competition agreement, the contract cannot confine future employment beyond the statutory guidelines, nor are non-competition agreements immune from legal challenges regarding their breadth, their validity, or their applicability to particular circumstances.

In the real world, employees leave for new positions every day.  They pursue opportunities at other companies.  They perceive opportunities to start companies of their own.  They move on.  Nonetheless, thoughtfully crafted non-competition agreements can significantly help a business retain key employees, or – at the very least – make it far more difficult for departing employees to immediately join a competitor or start a competing business.  As in most contracts, the more specific the limitation (and the more reasonable the limitation relative to the possible damage a departing employee might cause your business), the more likely a court will uphold the contract.  If, for instance, your business is confined to a particular county, then restricting a departing employee from working in an entirely different State makes little sense.  After all, how would that departure negatively impact your business?  So take care to have your attorney tailor your non-competition agreement in a manner that reflects your business and that provides you the protection you deserve for those inevitable situations when an employee critical to your bottom line decides to see if the grass is greener elsewhere.

Which takes us back to the heat and the humidity.  While it’s tough to argue that the humidity can turn your Florida summer from a sauna to a steam bath, it’s also tough to deny that – if nothing else – the rain and the humidity do an excellent job of keeping our lawns green year-round.  If keeping critical employees around makes sense to the financial health of your company, consider hiring an attorney familiar with drafting non-competition agreements.  Under certain circumstances, it could literally save your business.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.

Why Go to the Movies?

Summer has arrived.  The Hollywood blockbusters are here.  New animated features hit the big screens this week.  Superman is flying once more.  Sure, if the movies are your cup of tea, then summer is your annual thirst quencher.  However if you’re looking for drama, you need only scan the internet to find your daily dose of serious corporate espionage and the criminal theft of trade secrets from American corporations.

Just yesterday the San Francisco Chronicle ran a story of a scientist working on solar cell technology who pled guilty to several counts of wire fraud in an indictment claiming he stole trade secrets from his employer “and tried to take them to a competitor in China.”  The prosecutors in the case “estimate the total loss from the theft of trade secrets at nearly $22.7 million.”  The Telegraph – a British newspaper – reported this week that cyber espionage is rampant in the UK with “foreign hackers” secretly working in some companies for up to two years “discreetly stealing intellectual property.”  American newspapers recently published articles that our government systems are under constant attack not only from rogue hackers but also from foreign governments utilizing sophisticated programs and systems in an effort to steal American secrets and military information.  Same thing for recent stories of Chinese manufacturer Sinovel and two if its executives, recently indicted for alleged theft of wind turbine trade secrets.  Alleged financial loss to the owner of the trade secrets: approximately $800 million according to SecurityInfoWatch.com.

The problem is rampant and unlikely to go away.  Nor is this something new.  Corporate espionage likely began soon after the first business incorporated.  Of course, victimized businesses take little comfort knowing that others victims also exist.  So what can your company do to avoid, eliminate or minimize this potential loss?  First line of defense, of course, is education.  Educate the people in charge of monitoring the transmission of technical data on the best means to detect the “discreet stealing.”  Depending on the value of the intellectual property (and the potential loss to your business if a competitor was to receive the trade secret information without a license or without compensation), the potential losses could justify the investment in employees whose role is to oversee the data transferred to and from your company’s system.

As most of you who read this post already know, Florida employment is at will.  While termination for a discriminatory purpose is unlawful, termination for violation of company policies (or termination for violation of State or federal law) is common.  However, as these events (and the dozens of other recently reported events) indicate, the most difficult task for American companies lies in screening employees so as to minimize the possibility of trade secret theft, while at the same time ensuring that all potential employees are given an equal opportunity to apply for a position for which they are potentially qualified.

If your company faces a patient, technically savvy and stealthy employee, like the ones described who steal trade secrets with stealth for two years before they are discovered, a well-written policy is not likely to act as a significant deterrent.  On the other hand, Florida law specifically allows employers to create written policies regarding the protection of its trade secrets and to enforce those policies against its employees as appropriate.  In most circumstances, employee education (and continuing acknowledgement) of the employer’s policies, in concert with a method for your business to monitor activity and to “police” itself, can deter most of the individuals who might consider trade secret theft.

If you would like additional information on non-compete agreements and trade secrets law, please contact one of the Burr & Forman Non-Compete & Trade Secrets team members.