Florida Non-Competition/Restraint of Trade or Commerce Statute

25 Dec 2014

Florida Non-Competition/Restraint of Trade or Commerce Statute

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BusinessesFlorida Non-Competition/Restraint of Trade or Commerce Statute

The Florida statute that expressly mentions successor liability in the context of non-competition clauses can be found at Fla. Stat. § 542.335(1)(f) which applies to restrictive covenants entered into after June 30, 1996 and states in pertinent part:

“(f)      The court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is a third party beneficiary of such contract or is an assignee or successor to a party to such contract, provided:

  1. In the case of a third party beneficiary, the restrictive covenant expressly identified the person as a third party beneficiary of the contract and expressly stated that the restrictive covenant was intended for the benefit of such person.
  1. In the case of an assignee or successor, the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.”

Key Cases

  1. Corporate Express Office Products, Inc. v. Phillips, 847 So.2d 406 (Fla. 2003).

Facts:              Three employees entered into non-compete agreements with different predecessor entities. Two of the agreements were entered into in 1986 and one in 1989. Successor entity that sought to enforce agreements acquired the predecessors or their assets in different ways.

Holding:          Florida Supreme Court applied Fla. Stat. § 542.33(2)(a) — which was the statute governing these 1986 and 1989 agreements — and which specifically stated:

“…[O]ne who is employed as an agent or employee may agree with his employer to refrain from carrying on or engaging in a similar business and from soliciting old customers of such employer within a reasonably limited time and area,…so long as such employer continues to carry on a like business therein…”

The Court specifically held that its analysis in this case was strictly limited to non-competes that were executed prior to July 1, 1996 and did not indicate, even in dicta, whether the newer Fla. Stat. § 542.335(1)(f) statute “changes the law regarding assignments.” Id. at 410.

The Court went on to distinguish between the different types of business transactions before it and the effect the nature of those transactions had on successorship analysis. Specifically, the Court reviewed (1) asset sales, (2) a 100 percent stock sale, (3) a merger, and (4) a name change.

The Court, in sum, held that with respect to asset sales, the successor can only enforce an existing non-compete between an employee and predecessor if the employee consented or elects to consent to the assignment. Id. at 413. However, no such consent is needed if the successor acquires the predecessor through a 100 percent stock sale, a merger, or a name change. Id. at 413-414.

The Court then applied these legal principles to the complicated facts and found that due to the nature of the transactions between the predecessors and successor, the successor could enforce the non-competes against the former employees. Id. at 415.

  1. Wolf v. James G. Barrie, P.A., 858 So.2d 1083 (Fla. 2nd DCA 2003).

Facts:              Veterinarian employee signed restrictive covenant in 1992 with predecessor. In 2002, predecessor sold the assets of the practice to successor with whom employee worked as an independent contractor. Shortly after asset sale, employee opened his own vet practice. Shortly after that, the predecessor and successor agreed to rescind asset sale. Subsequent to the rescission, predecessor attempted to revive non-compete with former employee and sued him to prevent him from practicing on his own.

Holding:          Appellate Court found that Fla. Stat. § 542.33(2)(a) applied and that Phillips supra controlled. Court held that non-compete was unenforceable since the predecessors sold its assets to the successor which required the employee’s consent to a transfer of the non-compete. Moreover, the predecessor and successor’s agreement to rescind their asset sale could not unilaterally resurrect the non-compete between the predecessor and the employee which had terminated upon the date of the asset sale.

  1. Sun Group Enterprises, Inc. v. DeWitte, 890 So.2d 410 (Fla. 5th DCA 2004).

Facts:              Three employees signed various restrictive covenants in 1997, 2000, 2002, and 2003 with predecessor. In or around 2002, predecessor sold its assets to successor after two of the employees had already left but before the third employee left. Successor sued all three employees alleging breach of non-competes.

Holding:          Fifth DCA applied the “sale of assets” reasoning articulated in Phillips supra but did not address whether that holding was truly applicable to these specific non-competes which were entered into after June 30, 1996 and were therefore governed by Fla. Stat. § 542.335(1)(f) which the Court curiously did not mention.

While the Court did rely on the fact that there was no express consent in the non-competes by the employees to any assignment it did not tie that fact to 542.335(1)(f) in any way.

Therefore, the Court’s opinion leaves open the possibility that evidence of the other transactions mentioned in Phillips might still be enough for purposes of a successor enforcing a non-compete even without what appears to be the firm requirement of express consent in 542.335(1)(f). It may be that no showing of express consent is needed if there is no “successor” due to the nature of the business transaction.

In other words, for non-competes executed after June 30, 1996 (and therefore subject to 542.335(1)(f)), it remains unclear whether a court must continue to look to the nature of the business transaction as it must for non-competes executed before July 1, 1996 (and therefore subject to 542.33(2)(a) as in Phillips) or whether such an analysis is unnecessary since it appears clear in the statutory text of 542.335(1)(f) that the pertinent inquiry is whether there is evidence of express consent in the non-compete itself to an assignment or transfer to a successor without any mention or consideration of the nature of any business transactions between predecessors and successors.

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Florida Non-Competition/Restraint of Trade or Commerce Statute
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Florida Non-Competition/Restraint of Trade or Commerce Statute
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Florida noncompete and trade laws are extremely complex. This is an overview of some of the legal theories.
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Massey & Duffy has existed since October, 2003. We focus exclusively on civil litigation, including wrongful death, overtime cases, car and trucking accidents, insurance claims, breach of contract, general employment law, and serious personal injury lawsuits.