Court Says It’s Time to Pay The Piper, Even if the Piper Hasn’t Paid: Fee Provisions and Third Party Payments

Employers who have the foresight to draft a non-compete agreement often fail to consider some of the potentially adverse financial ramifications from enforcing the non-compete agreement through litigation. Most employers seeking to enforce a non-compete agreement unhappily discover that they may be on the hook to pay the attorney’s fees a subsequent employer funds in defense costs.  Yet that is exactly what could happen if the employer doesn’t correctly draft the fee provision in the non-compete agreement.

Substance of the matter aside, one of the key questions after non-compete litigation is a simple one:  who pays the often high attorney’s fees and costs?  Recent developments in Florida law highlight how important it is to properly draft attorney’s fee provisions in non-compete agreements.  In Rogers v. Vulcan Manufacturing Co., Inc., 37 Fla. L. Weekly D1309a (Fla. 1st DCA June 1, 2012), the Florida First District Court of Appeals found the language of the non-compete agreement at issue entitled an employee to attorney’s fees even though its subsequent employer, a third-party, wholly funded the non-compete litigation.  The non-compete agreement language at issue read: “In any action to enforce any term, condition, or provision of this agreement, the prevailing party shall be entitled to recover the reasonable attorney’s fee incurred to enforce the same.” (Emphasis added).  The court found this language demonstrated that the parties intended for the loser to pay attorney’s fees regardless of the source of the funds – even if the source was a subsequent employer.

The court noted that if the parties had intended to limit fee reimbursement to situations in which the prevailing party personally paid the attorney’s fees and costs ─ or incurred an obligation to pay the attorney’s fees and costs ─ then prevailing party language within the non-compete agreement should have clearly said so. In Rogers, the court gave the employee the benefit of the prevailing party fees despite the fact that the new employer, and not the former employee, actually paid the attorney’s fees and costs in response to the former employer’s lawsuit.  The Rogers court reasoned that the non-compete agreement entitled the former employee to reimbursement of attorney’s fees and costs because the clause provides that “the prevailing party shall be entitled to recover the reasonable attorney’s fee incurred to enforce” the agreement, rather than saying that the prevailing party is entitled to the attorney’s fees “it/he/she” incurred.  Thus, the court interpreted the provision as intending for the loser to pay the winner’s reasonable attorney’s fee, regardless of the source of the funds.

The Rogers court further noted that a non-assignability clause will not affect the obligation of attorney’s fees under the agreement. The court found it irrelevant whether the former employee was ultimately responsible to reimburse his new employer for advancing attorney’s fees on the employee’s behalf.  Because the former employee did not actually assign his rights or benefits under the non-compete agreement, the court found that no violation of the non-assignability occurred, despite the fact that the burden of paying attorney’s fees and costs rested solely on the new employer.

Losing valuable employees to competitors poses substantial business risks.  Carefully drafted non-compete agreements can help minimize these risks.  Among the risks are future litigation costs and the possibility that fee-shifting provisions can increase litigation expense, and thus add even more risk.  The Rogers case clearly illustrates the importance of properly wording non-compete agreements.  If minimizing financial exposure from an unsuccessful attempt to enforce a non-compete agreement is important to your business, then you should consider revising your agreement to limit the risk of paying attorney’s fees that subsequent employers advance or fund outright. Our team at Burr & Forman would be happy to aid you in such matters. Please contact any of the Burr & Forman Non-Compete & Trade Secrets team members for assistance.