New Year’s Resolution: Review Non-Compete

With the holidays around the corner, college football “Bowl Season” ramping up, and the singing of Auld Lang Syne within earshot, many employers not in the retail or travel businesses are wrapping up 2014 and preparing to start off 2015 with a strong first quarter. Some businesses shut down for the week between Christmas and New Year, understanding that many employees plan either to travel to family or to otherwise take long-saved vacation time. The New Year is sure to bring many changes. Congress will have a new look for at least another two years and the economic uptick across most industries not related to oil production is expected to continue to drive the economy forward in its recovery. http://www.burr.com/NewsResources/Resources/~/media/EF6EAAB39DEA4277AA841FEA92886D09.ashx

As a result, for most business leaders, the outlook for 2015 is positive. Employers also know that positive growth conditions can lead to competition among employers for the best employees. To complete the circle, competitive companies often court the most marketable employees during periods of economic growth. And so we get around to non-competition agreements and the question of whether or not your company’s non-competition agreement can give you a competitive edge when the economy’s opportunities call on your best and brightest.

To start with basics, it is important to understand that in almost all circumstances state law governs the legality and enforceability of non-competition agreements. In Florida, for instance, the legislature has penned a statute that defines the circumstances in which an employer can contractually restrain its current employees and the parameters that courts interpreting Florida law can use to determine the enforceability of a non-compete agreement. Not all states allow these agreements. Many states limit the agreements to certain professions.

Presuming you come from a state whose laws allow agreements that restrict the future employment of former employees, the end of the year is usually a great time to review the parameters of any in-place agreements and to work with your counsel to prepare an enforcement strategy… just in case. Keep in mind that non-competition agreements vary widely both in their complexity and in the length of their term. Some non-competition agreements allow the departing employee to essentially buy their way out of the restrictions. Others simply discuss an area and time frame in which the departing employee cannot compete.

However complicated your agreement, it is always best to develop your enforcement strategy before an employee departs. At Burr & Forman we have attorneys in offices throughout the southeast with the experience to help you develop your non-competition agreements, your enforcement strategy, and — when necessary — to take legal action for enforcement.

Non-Competition Agreements: Black Friday, Cyber Monday or Bust

This is one of those funny calendar years where Thanksgiving tucked itself deep into the month of November, leaving far too little time for people to contemplate the upcoming holidays and whether or not it’s actually appropriate to wear that 1980′s – style sweater to the office. (As an aside, you may have convinced yourself that your sweater still fits. Office tip: it doesn’t.) So here we all are, scrambling to make the perfect Thanksgiving celebration, wondering how we’re going to complete the year’s remaining tasks before year-end, and otherwise scrambling like we have in virtually all previous holiday seasons. Yes, this is the perfect time of year to practice the annual ritual of attempting a moist turkey using a never-before-tried recipe. If you’re an employer, this is also the perfect time of year to look at your company’s non-competition agreement and how you might enforce it. As with all of these blogs, it’s important to note that ̶ generally speaking ̶ each state has its own rules and laws on the legality and enforceability of employer/employee non-competition agreements. In Florida, the legislature has created a statute specifically on point (hidden as it is among other laws discussing “restraint of trade”). Under a defined set of circumstances, Florida law allows an employer and an employee to enter into a non-competition agreement that limits for a period of time a departing employee’s ability to directly compete with the former employer. Some states specifically disfavor these restraints of trade. Some states allow an employer and employee to enter into a non-competition agreement without the benefit of having a statute on the matter to help define the allowable scope of such an agreement. On Black Friday and Cyber Monday retail stores around the nation and across the internet severely discount their products and services in order to attract customers and in an effort to turn their fiscal year profitable. It is the ultimate competition for consumer dollars. Similarly, businesses of all types are also using the final month of the calendar year to maximize collections and increase annual profits. For many employers this is also a time to contemplate whether and in what amount employees will receive annual bonuses. Knowing this, many employees wait until after their employers distribute bonuses to inform the employer that the employee intends to soon start working at a competitor. For many employers, this is the first time all year that will they look at the terms of their non-competition agreement and attempt to determine whether or not the terms are easily enforceable against the departing employee. However, just like the retailers who plan far in advance for Black Friday and Cyber Monday, employers should also take this opportunity to look over their agreements to determine ̶ in advance ̶ the best corporate strategy for enforcement. Some agreements include a devaluation of company stock for departing employees. Some agreements forbid competition for a defined period of time within a restricted area. Keep in mind that states tend to strictly interpret non-competition clauses. When terms are not clear, courts usually give the benefit of the doubt to the employee, favoring free competition whenever possible. Just like with Black Friday and Cyber Monday, it’s difficult to know in advance whether or not your strategy will pan out. To give your company the best shot at success, it makes sense to look over your options in advance.

Burr & Forman attorneys in nine offices throughout the Southeast are available to consult with you on these issues, to develop your strategy, and to work with you when the need to enforce arises.

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.

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.

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.

Is An Assigned Non-Compete Agreement Enforceable?

In the case of a merger or acquisition, the successor company might take an assignment of the current non-compete agreements in favor of the predecessor company.  The enforceability of an assigned non-compete agreement, however, varies from state-to-state, as is true with most issues concerning non-compete law.  Below is a quick survey of how some of the states in the Southeast address the issue:

Georgia – Non-compete agreements, similar to most contracts in the state, are assignable provided that the duties under the agreement do not materially vary from the performance required by the original parties and provided that the contract is not for personal services.  West Coast Cambridge, Inc. v. Rice, 262 Ga. App. 106 (2003) (finding that successor partnership could enforce noncompete agreement against doctor because the law provided no prohibition against the assignment of the agreement and the agreement was expressly binding on successors and assigns, and noting that contract was not for personal services because it only obligated the doctor to not take certain actions).

Tennessee - Tennessee law recognizes that covenants not to compete are assignable absent specific language in the covenants prohibiting assignment.  See Packers Supply Co. v. Weber, 2008 Tenn. App. LEXIS 226 (Tenn. Ct. App. Apr. 14, 2008) (citing Bradford & Carson v. Montgomery Furniture Co., 115 Tenn. 610, 92 S.W. 1104 (Tenn. 1906)).

Alabama - Because non-compete agreements are disfavored as a restraint on trade (see Ala. Code § 8-1-1), a successor employer cannot enforce an employee’s covenant not to compete.  Construction Materials v. Kirkpatrick Concrete, 631 So. 2d 1006 (Ala. 1994) (refusing to enforce noncompete agreement for successor of employer and noting that the legislature’s omission of a specific provision in Ala. Code § 8-1-1 establishing a successor employer’s right to enforce an employee’s covenant with the predecessor employer creates an affirmative interference that this code section was not intended to allow enforcement by successor employers).

Florida - In Florida, the question is answered specifically by  Fla. Stat. § 542.335(1)(f)(2), which provides that a “court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is . . . an assignee or successor” provided that “the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.”  Recently, Florida’s First District Court of Appeal held that a general assignment clause (such as a statement that the agreement will “inure to the benefit of and be binding upon . . . assigns and successor) is sufficient to assign the agreement to a successor.  DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928 (Fla. Dist. Ct. App. 1st Dist. 2012).

BURR POINT:  Special attention should be paid when drafting a non-compete covenant to ensure that the assignability of the covenant is in accordance with the parties’ expectations and the applicable state law.

 

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.

Mass-Mailing To Public Employees Did Not Violate Non-Solicitation Agreement

A Florida court recently held a former employee’s “mass-mailing” to her former employer’s customers did not violate her non-solicitation agreement.  In Variable Annuity Life Insurance Co. v. Laeng, Docket No. 8:12-cv-2280-T-33MAP (M.D. Fla. Feb. 11, 2013), the employer, VALIC, marketed financial services to tax exempt organizations.  As a condition of her employment, the employee, Laeng, executed a “Registered Representative Agreement” under which the she promised to not use or disclose VALIC’s trade secrets and confidential and proprietary information at any time.  Laeng also agreed to not solicit VALIC’s customers for one year after leaving her employment.  However, Laeng was not prevented from competing with VALIC.

After leaving VALIC, Laeng began working at LPL Financial, VALIC’s direct competitor.  Laeng sent a mass-mail solicitation to employees of two local school districts.  The mass-mailing included VALIC’s customers to whom Laeng was assigned.

VALIC filed suit and a motion for a preliminary injunction alleging Laeng violated her agreements to not disclose VALIC’s confidential information, including its customer lists, and to not solicit VALIC’s customers.  VALIC asserted Laeng’s actions resulted in a loss of more than $629,113.32.

The court denied VALIC’s motion for a preliminary injunction on the grounds there was not a substantial likelihood VALIC would succeed on the merits of its case.  Other than its suspicions, VALIC presented no evidence that Laeng took or used any confidential information. Significantly, the court found that even though Laeng’s mass-mailing included VALIC’s customers, the customer information was not unique to VALIC.  Rather, the customers were public employees of local school districts whose identities were publicly available upon request.  The court found Laeng’s mass-mailing was achievable without the use of VALIC’s confidential customer information.

The court did not discuss Laeng’s non-solicitation agreement which, on its face, would prevent Laeng from soliciting VALIC’s customers regardless of how the customer information was obtained.  Rather, the court focused on the fact that the customer information was publicly available.  Hence, the court’s ruling could be read to support the position that a former employee does not violate her non-solicitation agreement when the employer’s customer information is not confidential.

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.