Florida Non-Compete Agreements & Goodwill

Over the past several years, we have been involved in more than 300 non-compete disputes. We resolved the vast majority of these disputes out of court. But we have also done our fair share of non-compete litigation (on both sides). We have obtained injunctions on behalf of our clients. See, e.g., DL Cycles v. Paul Mazurek, Case No. 1102015-00907 (Collier County 2015) (securing permanent injunction for DL Cycles d/b/a Trek Bicycle Stores against former regional manager). And we have beaten numerous injunctions on behalf of other clients. See, e.g., Evans v. Generic Solution Engineering, No. 5D15-578, 2015 WL 6554429, at *2 (Fla. 5th DCA 2015) (vacating preliminary injunction); Moon v. Medical Technology Associates, 577 F. App’x 934, 935 (11th Cir. 2014) (vacating preliminary injunction); Moon v. Medical Technology Associates, 2015 WL 413347, at *1 (M.D. Fla. Jan. 30, 2015 (denying preliminary injunction on remand). I say this to emphasize the fact that we have extensive experience in this arena. From this vantage, I see a lot of recurring themes. This is the first post in a series that will touch upon recurring themes. Today’s recurring theme is customer goodwill.

Plaintiffs (and plaintiffs’ lawyers) in non-compete cases tend to beat the drum about customer goodwill. Let me explain why: In Florida, as in many other states, injury to a company’s goodwill is considered irreparable harm sufficient to justify an injunction. Beyond this, the concept of goodwill is a bit vague. So if the plaintiff claims about customer relationships are a bit weak, they will often make the strategic decision to put everything in terms of goodwill. Again, because the meaning is a bit vague and that claim alone (“It’s hurting our goodwill!”) is often enough to get an injunction in Florida state court. Let’s unpack this:

The concept of goodwill is subject to numerous definitions and understandings. The most widely accepted definition of goodwill, however, is this: The expectation of continued patronage. We can flesh it out further, but that’s the very heart of the concept. That old customers will keep coming back and that new customers will keep showing up for any number of reasons (location, celebrity, reputation, skill, influence, etc).

In the non-compete context, the goodwill argument works like this: Joe Smith sold medical devices for ABC Co. If he has a non-compete but jumps ship to go work for MedCo, he might destroy ABC’s expectation of future business with various customers. In other words, but for Joe Smith’s actions, those customers would have stuck with ABC Co. I see this argument all the time. Here’s the rub:

I have been involved in numerous cases where plaintiffs deployed the goodwill argument, but the argument was utterly bogus. In order for a plaintiff to obtain an injunction because a former employee is a threat to their goodwill, they should first have to demonstrate that they have goodwill. In the injunction context, that means the plaintiff should be forced to (1) make a substantial showing that (2) they have a reasonable expectation of continued business with (3) specific customers. And there are many situations in which the plaintiff simply cannot make such a showing. For example:

  • Everything is bid. If it’s open bidding, then the plaintiff cannot have a reasonable expectation of continued patronage/business. The only reasonable expectation they can have is the right to bid.
  • The plaintiff never did business with certain customers. If the plaintiff puts numerous customers at issue but only did business with a fraction of them, then narrow it down. A plaintiff can’t have an expectation of continued business if they never had business in the first place.
  • The relationship ended. If the relationship between the plaintiff and customer ended for some other reason (bad service, pricing that wasn’t competitive, quality of goods, etc.), then the relationship is over. Back to the hypothetical above. Before Joe Smith leaves ABC Co., ABC has a huge falling out with Miami Surgical Inc. Miami Surgical says they’ll never do business with ABC again. Joe leaves, goes to MedCo and then tries to pick-up Miami Surgical as a client. There’s no threat to goodwill because that relationship ended. There’s no expectation of continued business.

Bottom line: The best way to attack goodwill is by defining it as the expectation of continued patronage and demonstrating why the plaintiff could not reasonably expect future business from the customer(s) at issue.   On the flip side, the best way to make the case for goodwill as a legitimate business interest is to show factors that tend to support an expectation of future business (i.e. long term contract, constant stream of recurring business, etc).

The caveat:  This analysis of goodwill is much different in sale of a business non-compete cases.

Jonathan Pollard is a trial lawyer and business litigation attorney based on Fort Lauderdale, Florida. He focuses his practice on competition law and has extensive experience litigating non-compete, trade secret and antitrust claims. He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Non-Circumvention Agreements Under Florida Law

Non-circumvention agreements are a seldom-discussed topic in the world of non-compete issues.   In brief, non-circumvention agreements come into play when one party introduces or connects two other parties. In other words: A introduces B to C so that B and C can do business together. B pays A for connecting the two. Often, B pays A either a flat fee or a percentage of the revenue it generates from C. A makes all of its money by connecting people. So, in order to protect itself, A requires B to sign a non-circumvention agreement. B agrees that it will not try to cut A out and form a direct relationship with C. In this way, A insures that it gets its cut every time that B and C do business.

Let’s use a concrete example: There is a company in Miami called CFO Temps. CFO Temps specializes in providing interim CFOs for small but growing companies. CFO Temps places John at a company called South Florida Solar. CFO Temps has a non-circumvention agreement with South Florida Solar. That agreement basically says that for the duration of the Parties’ agreement and for a period of one-year thereafter, South Florida Solar will not attempt to directly hire John and, if they do want to directly hire him, they will have to pay CFO Temps a fee of $25,000.

Non-circumvention agreements like the one in this hypothetical are restraints or trade. They are a type of non-compete agreement and, like other non-compete agreements, are governed by state non-compete or antitrust statutes. In Florida, the applicable statute is Florida Statutes 542.335.  Interestingly, under Florida law, there is a long history of courts enforcing non-circumvention agreements.   This holds true at both the federal and state court levels.

The upshot of all this: Let’s return to the hypothetical. South Florida Solar should pay CFO Temps the $25,000 fee to direct-hire John.   Trying to circumvent CFO Temps and direct-hire John without paying the fee is a bad business decision. At first, the prospect of saving $25,000 may seem attractive. But in the end, based on current law, South Florida Solar would lose in litigation and ultimately end up paying the $25,000, plus its own attorneys’ fees plus the plaintiffs’ attorneys’ fees.

The takeaway: Non-circumvention agreements are enforceable under Florida law. The Florida case law on enforcing non-circumvention agreements is extremely pro-enforcement. From a business standpoint (i.e. bottom line), it makes no sense to challenge a non-circumvention agreement unless (1) the fee at issue is substantial (think $100,000+) or (2) the fee is perpetual (for as long as B and C do business). On the flip side, if you have a non-circumvention agreement in place and the counter-party is violating that agreement, then you have options.   The strongest option is to sue the counterparty for (1) either an injunction (to prevent the direct hire without payment of fees) or (2) the fee and (3) attorney’s fees.

As always, if you have a question about Florida non-compete, non-solicitation or non-circumvention law, contact Fort Lauderdale non-compete lawyer Jonathan Pollard at 954-332-2380. Jonathan has been interviewed about non-compete issues by INC Magazine, Bloomberg, FundFire, The National Federation of Independent Business and others. He is regarded as an authoritative source on Florida non-compete law.

Enforcing Florida Non-Compete Agreements

As many people know, we have a tremendous amount of experience successfully defending Florida non-compete cases.  But we also have experience successfully enforcing non-compete agreements under Florida law.

Often, plaintiffs in non-compete cases make a fundamental mistake in hiring the wrong attorney.  Let me explain:  Over the past several years, I have encountered a number of attorneys who specialize in enforcing non-compete agreements.  These attorneys typically work for large firms, particularly large firms that focus on labor and employment litigation.  As a practical matter, many of these attorneys have very limited litigation experience and a very limited skill-set.

Think about it:  Many attorneys who specialize in enforcing non-compete agreements are used to having it easy.  As a starting point, Florida law supports aggressive enforcement of non-compete agreements in many instances.  It is easier to enforce a non-compete agreement in Florida than it is in virtually any other state.  So, right of the bat, that gives the prosecution an advantage.

Next, consider the disparity in resources between the parties:  The plaintiff is typically a corporate entity, whereas the defendant is typically an individual.  The plaintiff has far more resources.

Then consider the merits:  In certain instances, the plaintiff has the defendant dead to rights: For example, the defendant stole a customer list.  Or, the customer relationships are exclusive and highly protectable.  In these instances, the plaintiff has a tremendous advantage right from the start.

Not surprisingly, many attorneys who specialize in enforcing non-compete agreements under Florida law are quite successful in doing so.  They win far more often than they lose.  They have an impressive track record.  But if you look a bit closer, that track record is not based on their litigation abilities or knowledge and facility with the law.  It’s because they’ve had it easy.  It’s like the New England Patriots playing against a high school football team.  It’s  not even a contest.

The upshot of this:  If you need to enforce a non-compete agreement in a slam dunk case against some low level employee who has no resources, then you can hire any halfway decent lawyer and you should be fine.  You don’t need my help.   So when do you need my help?  I’ll tell you.

If you are going to enforce a non-compete agreement against a high-level employee who has resources, then you should call me.  If you are going to enforce a non-compete agreement and plan on suing not only the ex-employee but also his new company (and the company will fight back), then you should call me.  If you are going to enforce a non-compete agreement and  it could get ugly, then you should call me.

Here’s why:  Many lawyers who specialize in enforcing non-compete agreements have very limited experience.  They are accustomed to filing a lawsuit and forcing a quick settlement.  Either they sue and the defendant immediately comes to the table, or, they sue and get a preliminary injunction and it’s game over.  For hundreds of lawyers at large firms, this represents most of their litigation experience.  That is a tremendous problem.

These lawyers cannot litigate the hard cases against an opponent who has resources and will fight back.  For all practical purposes, they do not have the right knowledge, experience or skill-set to address the following:

  • Preparing for a difficult preliminary injunction hearing
  • Losing a difficult preliminary injunction hearing
  • Defending against an appeal of a preliminary injunction
  • Discovery tailored toward an end game (summary judgment/trial)
  • Summary judgment briefing
  • Proving damages
  • Pre-trial process
  • Trial

Here’s the bottom line:  If it’s an easy case against a low-level employee who has no resources, then any halfway decent attorney should do.  But if it’s a tough case or a case against a serious adversary, proceed with caution.  I have a tremendous amount of experience in this arena.  I have defended tough non-compete cases and made them very, very ugly.  Here is a concrete example:

In Moon v. Medical Technology Associates (MDFL), we sued for a declaratory judgment holding several non-compete agreements unenforceable.  We sued first to force the case into federal court..  If the attorneys on the other side were smart, they would have moved to dismiss the case based on forum selection clauses.  Three of the four plaintiffs’ contracts contained mandatory forum selection clauses for Pinellas County, Florida.   When a contract says Pinellas County, that means Pinellas County.  There’s no way into federal court.  The fourth plaintiff’s contract said Pinellas County or the Middle District of Florida – Tampa.

So we rolled the dice and filed a declaratory judgment action in the MDFL – Tampa before they could sue us and drag us into Pinellas County Circuit Court.  At this point, the correct move for the Defendant would have been to move for dismissal based on the forum selection clauses.  And although one contract did provide for either the MDFL or Pinellas County, that would have been dismissed as well.  Consider the following:  The court has to dismiss 3 of the plaintiffs for improper forum.  The fourth plaintiff can litigate in either one.  So there is nothing unreasonable about dismissing the fourth plaintiff as well so the entire case can be litigated in Pinellas County.  Further, it was a declaratory judgment action.  And federal courts have tremendous discretion to decline jurisdiction in declaratory judgment matters.

But the defendant did not make the right move.  Instead, they answered and counter-sued in federal court.  They then sought and won a preliminary injunction enforcing the various non-compete agreements.  But from there, everything went down hill for them:

We appealed the injunction to the United States Court of Appeals for the Eleventh Circuit and won.  The case came back down to the district court on remand and there was a second preliminary injunction hearing.  We won that hearing and the court entered a scathing order against the other side (accusing them of filing bogus declarations at the outset of the case).  We then won partial summary judgment in another order that was highly critical of the other side.  We then moved into the pre-trial phase and filed a motion to exclude all of their damages evidence (if it could even be called evidence!). On the brink of trial, the case settled.

I can guarantee you that opposing counsel in that case thought it was going to be another easy non-compete case.  They thought wrong.   Take a look at the docket here:  Electronic Case Filing | U.S. District Court – Middle District of Florida.

So it’s a cautionary tale:  If you have to enforce a non-compete agreement and you anticipate that it will get ugly, hire an attorney has experience litigating ugly non-compete cases.  We do.  On both sides.  The video below lays out my strategy for successfully enforcing Florida non-compete agreements.

Jonathan Pollard is a trial lawyer and business litigation attorney based on Fort Lauderdale, Florida. He focuses his practice on competition law and has extensive experience litigating non-compete, trade secret and antitrust claims. He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Preliminary Injunctions & Reasonable Notice Under Florida Law

In non-compete and trade secret litigation, the preliminary injunction often is the most important part of the case. This is true for a number of reasons. In some cases, the decision at the preliminary injunction stage is dispositive. A sweeping injunction can cripple defendants financially and force a settlement. Conversely, when an injunction is denied, plaintiffs often come to the table and seek a quick resolution.   Even if litigation continues after the injunction has been decided, that decision as a tremendous impact on the parties’ resources, the future trajectory of the case and the dispute’s ultimate outcome. In light of this, litigants on both sides must recognize the importance of the preliminary injunction phase.

A critical part of preliminary injunctions is notice. Let’s unpack this. Under Florida law, a plaintiff can seek can temporary restraining order. A temporary restraining order or TRO is an expedited, temporary form of a preliminary injunction. Plaintiffs seek TROs in situations that they deem emergencies. A plaintiff seeking a TRO can do so on an ex parte basis. In other words, a plaintiff can go to the court and request a temporary restraining order without providing notice to the defendants. Under the rules, however, this ex parte approach is permissible only in limited instances. Specifically, courts will issue an ex parte temporary restraining order only where the plaintiff can show immediate and irreparable harm and explain why the defendant did not receive notice.  Courts are generally hesitant to grant this sort of ex parte relief.

Sidenote: Florida state law refers to everything as a temporary injunction. You can get an ex parte temporary injunction and then – after notice and a hearing – a temporary injunction.  That’s unnecessarily confusing. Federal law is much neater. Federal law distinguishes between a TRO and a preliminary injunction. For clarity sake, I am using the federal naming convention because it is easier to follow.

Even when a court does grant an ex parte temporary restraining order, that relief – as the name suggests – is only temporary. TROs are meant to maintain the status quo only as long as necessary to hold an evidentiary hearing on a preliminary injunction. In contrast, a preliminary injunction generally lasts until trial. So, as noted above, TROs can be issued without notice to the defendant. But a formal preliminary injunction requires notice. This notice has two parts: First, the plaintiff must give defendant notice that they are seeking a preliminary injunction. This allows the defendant time to file a written response. Second, the plaintiff must notify the defendant of the time and date for the preliminary injunction hearing. The plaintiff must give the defendant sufficient notice of the hearing. This raises the following question: How much notice is necessary?

Consider the following hypothetical: Luxury Limo Co. is a limousine service that caters to ultra high-end clientele in Miami, FL and surrounding areas.   Joe is a regional manager of Luxury Limo Co. Joe plans to leave the company and start his own limo service. On his last day at Luxury Limo, he downloads a database containing all of Luxury Limo’s clients to an external hard drive.   The next day, he starts his own limo service, Miami Limo. He immediately blasts an email to all of Luxury’s clients offering special introductory pricing to all clients who make the switch from Luxury to Miami. Luxury sues, gets a TRO and then gets a hearing on a preliminary injunction.

What happens next depends on whether the case is in state or federal court. Plaintiffs in state court often have more control over scheduling than plaintiffs in federal court. Let’s deal with federal court first: In federal court, the court schedules the hearing. Generally, the court sets the hearing several weeks out, giving both parties an opportunity to engage in some discovery in advance of the hearing. But state court is entirely different.   State court is like the wild wild west.   When a plaintiff files a motion for a preliminary injunction in state court, the court does not automatically schedule a hearing.   In fact, if the plaintiff simply sits back and waits, nothing will ever happen. In order to get an evidentiary hearing on that motion, the plaintiff must contact the court about scheduling a hearing. Preliminary injunction hearings generally last a few hours. In state court lingo, a long hearing of this sort is a “special set” hearing. So, the plaintiff must request and schedule a special set hearing.

Back to the hypothetical: Luxury Limo sued Joe and Miami Limo in state court, got an ex parte TRO and is now seeking a preliminary injunction.  At this point, Joe and Miami Limo have been served with the complaint, the motion for a TRO and the order granting the TRO. Luxury Limo is now seeking an evidentiary hearing for the full-blown preliminary injunction that will last until trial. As noted above, in state court, the plaintiff has a great deal influence over the timing. Provided the court has time available, the only consideration is notice. How much notice is enough?

In this context, plaintiffs should be aggressive in terms of scheduling the hearing, but not so aggressive as to create grounds for an appeal. If the plaintiff sets an evidentiary hearing on two days’ notice and succeeds in getting an injunction, the defendant has a strong procedural argument for reversal on appeal. Here’s a good rule of thumb: Give the defendant at least a week’s notice prior to the preliminary injunction hearing. This gets the motion heard quickly while at the same time providing sufficient notice to the defendant.

Jonathan Pollard is a trial lawyer and business litigation attorney based on Fort Lauderdale, Florida.  He focuses his practice on competition law and has extensive experience litigating non-compete, trade secret and antitrust claims.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville.  His office can be reached at 954-332-2380. 

 

 

 

 

Interpreting Non-Solicitation Agreements

Where there is a non-compete provision, it usually is accompanied by a restriction against solicitation. This generally arises in two contexts: employment and the sale of a business.
Non-solicitation clauses generally prohibit solicitation of two categories of individuals: customers or employees. In the sale of a business context, the non-solicitation clause is used to prevent the seller of the business from reentering the market, launching a new venture, soliciting his old customers and soliciting his former employees. In the employment context, a non-solicitation clause is used to bar a departing employee from taking customers and other employees with him to a competing company.

In many instances, non-solicitation clauses are broadly written: For example, a standard employee non-solicitation clause restricting customer solicitation will generally provide as follows:

For a period of two years following Employee’s separation from the Company, Employee will not:

  • Solicit any of the Company’s customers,
  • Interfere with the Company’s customer relationships
  • Engage in any communications with any of the Company’s customers intended to induce the Company’s customers to end or alter their relationship with the Company or to do business with a competing company or
  • Perform services for any of the Company’s customers.

As written, this provision basically prohibits the departing employee from engaging in any communications with customers whatsoever if those communications are related to the customers taking their business elsewhere.

There is a widespread misperception among the general public that such provisions are not enforced as written. Instead, many people assume that non-solicitation clauses – no matter how broadly written – are only used to bar affirmative solicitation. In other words: An individual subject to a non-solicitation clause cannot actively solicit customers. But he can generally communicate with customers. And if those customers choose to move their business, the non-solicitation clause cannot prevent that from happening.

This is entirely false. To the contrary, provided there is a legitimate business interest (i.e. protectable customer relationships), Florida courts would enforce the above non-solicitation clause as written. That means the employee is barred from any contact with customers that could remotely constitute solicitation, interference or encouraging the customers to jump ship. Even if the customer reaches out to the former employee and expresses a desire to follow him to the new company, that would still constitute a violation of the above non-solicitation clause as written.

Now for the kicker: The above example was a very broad non-solicitation clause. In some instances, the contract at issue will contain a non-solicitation clause that – on its face – appears to be less restrictive. For example:

Employee will not solicit any of the Company’s customers for a period of two years following Employee’s separation from the Company.

Many would interpret this clause as only barring affirmative solicitation. But once again, at least under Florida law, that interpretation would be wrong. Florida courts have repeatedly found that even a narrow non-solicitation clause can operate to bar conduct beyond affirmative solicitation. When faced with this issue, numerous Florida courts have held that even where a customer initiates contact with the former employee, the former employee can still violate a non-solicitation clause. After the customer initiates contact, if the former employee does anything to influence that customer to jump ship, that constitutes a potential violation.

The takeaway: In Florida, broad non-solicitation provisions are generally enforced as written provided there is an underlying legitimate business interest (e.g. customer relationships). Even narrowly drafted non-solicitation clauses can bar a wide range of conduct even if that conduct does not amount to affirmative solicitation.

Jonathan Pollard is a trial lawyer and business litigation attorney based on Fort Lauderdale, Florida.  He focuses his practice on competition law and has extensive experience litigating non-compete, trade secret and antitrust claims.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Former Customers as a Legitimate Business Interest?

When do former customers constitute a legitimate business interest?

In a sale of business context, the short answer is, “Pretty much all of the time.” The purchaser of assets and goodwill of a business can, by agreement, completely remove the seller of the business from the field of competition. Even where a seller re-enters the marketplace and offers a product that the purchaser has decided not to sell, the seller’s former clients are still off limits.

In all cases, substantial relationships with specific prospective or existing customers constitute legitimate and protectable business interests. Fla. Stat. § 542.335. Noticeably missing from the statute is protection of former customers. Arguably, sellers of a business should therefore not be prohibited from soliciting customers who were abandoned by the purchaser of the business. Obviously, that ship has sailed. As applied to restraints against former employees, however, decisional law interpreting the statute does not go nearly as far as restraints against sellers of businesses.

At the very least, the Fifth District agrees that, “the protection of former customers generally does not qualify as a legitimate business interest where no identifiable agreement exists with such customers establishing that they would return with future work.” Envtl. Servs., Inc. v. Carter, 9 So. 3d 1258, 1265 (Fla. 5th DCA 2009). The Court there, however, went on to uphold an injunction issued against the defendants that restricted them from doing business with their prior employer’s former customers, specifically finding that, “ESI was attempting to protect established relationships with identifiable clients with whom it either had current projects or ongoing relationships.” Id at 1266. The Court seems to have concluded that the customers at issue became “former” customers of the employer only due to the wrongful acts of the defendants. As such, injunctive relief was proper. Sometimes, however, this is not the case.

In Moon v. Med. Tech. Associates, Inc. (one of our cases) both parties relied on Envtl. Serv. in their respective papers leading up to a hearing on defendant’s motion for preliminary injunctive relief. The Court denied such relief finding that certain of defendant’s customers, “…testified their relationships with MTA dwindled not based on the Respondents’ conduct, but rather the decreased level of service MTA provided after the Respondents departed MTA…” Moon v. Med. Tech. Associates, Inc., 2015 WL 413347, at *7 (M.D. Fla. Jan. 30, 2015). The decision there stands for the proposition that an employer’s actions in deteriorating its customer relationships can be used to show that relationships with those former customers were not legitimate business interests.

In Anich Indus., Inc. v. Raney, the Court was faced a contention by Anich that its ongoing relationships with its customers were protectable. The Court denied injunctive relief in part because, “The customers who testified on Anich’s behalf all acknowledged that they made their industrial tool and equipment purchases based primarily on cost and the supplier’s ability to provide the goods quickly.” Anich Indus., Inc. v. Raney, 751 So. 2d 767, 771 (Fla. 5th DCA 2000).

Finally, in Shields v. Paving Stone, Paving Stone was granted a preliminary injunction for all of the customers on its customer list. Finding that certain of those customers had been awarded through an open bidding process, the Court held in part that, “In enjoining Shields from soliciting those customers listed on Paving Stone’s customer list, the order must clearly direct that such prohibition does not include customers obtained through the open bidding process.” Shields v. Paving Stone Co., 796 So. 2d 1267, 1269 (Fla. Dist. Ct. App. 2001).

From these cases, we can arrive at three situations in which relationships with former customers are not protectable, even when the employer has conducted business with the customers over a period of years.  Those situations exist where:

  1. The quality of employer’s products and/or service diminished;
  2. The customers consistently shop around for the best alternative; or
  3. The customers open projects to bidding by prospective suppliers.

Based on this, the operative question should be, “Absent the employee’s alleged breach, is there a substantial likelihood that the customer would have continued the relationship with the prior employer?” If the quality of employer’s work is in doubt, the answer is, “No.” If the customer makes an independent decision on which vendor to use each time it needs products or services, the answer is, “No.” If the customer elects to open its doors to bidding, the answer is, “No.” As a logical corollary, if the customer transitioned away from the former employer to a new vendor prior to conducting business with the employee, the answer is, “No.”

The case law supports the proposition that former customers are protected only when the relationship between the employer and the customer is terminated due to the conduct of the employee. It is incumbent upon the employee to demonstrate that some intervening cause brought about the end of the relationship.

Nathan Saunders is a trial lawyer and litigator at Jonathan Pollard, LLC. His office is based in Fort Lauderdale, Florida. He focuses his practice on non-compete and trade secret litigation and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Employee Poaching & Raiding: Exposure Absent Non-Compete Agreements

The following is a video discussion regarding employee poaching and raiding.  A prior video discussed employee poaching and raiding in situations where the target employees have non-compete agreements.  This newest video focuses on exposure of the hiring company in circumstances where no non-compete agreements are present.

Although exposure is more limited in the absence of non-compete agreements, the lack of such agreements does not mean that the hiring company has no exposure or is immune from liability.

In circumstances where one company hires away numerous employees of a rival company, the rival may be able to pursue a claim based on employee raiding even absent non-compete agreements.  To be clear, there is no cause of action called “raiding.”  Rather, this is simply a manner of describing the particular conduct at issue.  Depending on the specific facts and circumstances, that conduct (i.e. raiding) potentially could give rise to claims for violations of state deceptive and unfair trade practices acts (e.g. FDUTPA) or for misappropriation of trade secrets.

Ultimately, hiring employees away from industry rivals is a delicate business that often creates exposure for the hiring company.  Where the hiring company seeks to hire away numerous employees, that exposure is increased.  Any company considering recruiting away valuable employees from an industry rival should first consult with a qualified attorney regarding (1) potential exposure and (2) strategies for minimizing potential exposure.

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims. Jonathan routinely represents doctors, corporate executives and other high level employees who are switching companies, or, who have started their own ventures. Beyond litigation, Jonathan advises employees, companies and business owners regarding restrictive covenant issues in connection with employment contracts, separation agreements, hiring decisions and the purchase or sale of business interests.  Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC, the National Federation of Independent Business and The Tampa Bay Times.

In addition to his background in non-compete and trade secrets work, Jonathan has broad experience as a competition lawyer, generally, and has litigated numerous cases under both the Sherman and Lanham Acts. He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Staffing Agency Non-Compete Agreements

Florida non-compete and trade secrets attorney Jonathan Pollard discusses non-compete agreements in the staffing and recruiting industry. Although there are certain exceptions, in many instances, non-compete agreements in the staffing industry should be unenforceable due to a lack of legitimate business interest.

This discussion draws from a recent case pitting the staffing agency KForce against a rival Beacon Hill. Specific sub-topics discussed include lack of confidential information in the staffing and recruiting industry, lack of protectable customer relationships and exceptional circumstances where a non-compete should be enforced.

Jonathan Pollard is a trial lawyer and litigator based on Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims.  Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC, the National Federation of Independent Business and The Tampa Bay Times.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Most Staffing Industry Non-Compete Agreements Likely Unenforceable

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Over the past several months, I have come across a number of non-compete disputes in the staffing or recruiting industry.  I have received calls from people involved in such disputes; resolved one such dispute out of court and read about many other staffing/non-compete disputes throughout the country.

Most of these cases involve the following fact pattern:  An account manager or recruiter – call him Jim – works for Staffing Company A.  He develops new accounts via cold-calling and networking, but Staffing Company A also gives him certain accounts.  Let’s say two of his biggest accounts are Charter Communications and Hospital Corporation of America.  Jim leaves Staffing Company A and goes to Staffing Company B.  He immediately gets to work trying to staff opportunities at both Charter and HCA.  Staffing Company A sues because Jim had a non-compete and non-solicitation agreement.  Staffing Company A claims that the non-compete agreement is justified because (1) Jim had access to confidential information regarding accounts, positions, etc and (2) the company paid for Jim to develop relationships with those customers and now Jim is trying to steal those customers.

I don’t buy it.  A recent case out of federal court in Missouri had this exact fact pattern (albeit different names).  The plaintiff sued on the same theory outlined above.  And the judge rejected it out of hand.  Even though non-compete law varies significantly from state to state, the same result could be reached under Florida law.

First, non-compete agreements can only be enforced where it is necessary to protect a legitimate business interest.  In the employment context, that most often means two things (1) confidential information or (2) customer relationships.  But in the staffing industry non-compete context, those interests usually do not exist.

First, let’s address confidential information:  In the Missouri case, the plaintiff claimed that the confidential information related to customers.  It included customer contact information, names of hiring managers, organizational charts.  In general, all of this information is publicly available.  Rival companies can gather this information via LinkedIn and other publicly accessible websites, or, through subscription services where they can buy this information.  Bottom line: the information is not confidential and cannot be used to support a non-compete agreement.

Next, let’s look at the customer issue:  In the staffing context, we generally are not dealing with exclusive relationships.  Yes, there are some instances in which an executive search agency is retained on an exclusive basis to fill a very high-level position (i.e. CFO, college president, etc).  That is an entirely different ballgame, and in that context a non-compete agreement may very well be enforceable.  But outside of that context, a staffing industry non-compete agreement probably should not be enforced.  Consider the following:  The customers in this hypothetical are Charter and HCA.  Both of these companies are large, national, multi-billion dollar, publicly traded companies.  They have hundreds of positions to fill.  They have dozens of hiring managers.  They work with numerous staffing agencies to fill open positions.

Again, drawing from the recent case in Missouri:  The record showed that Charter would email an open position to 20 or more staffing companies at the same time.  In essence, the customer is saying, “Hey all of you staffing companies:  Here is what we need.  Go compete and get me candidates.  Whoever brings us the best candidate wins.”

This fact pattern demonstrates (1) a lack of any exclusive relationship (2) lack of any long-term or guaranteed contract (3) fierce competition and (4) “purchasing” decision based not on a relationship with the vendor but on the vendor’s ability to deliver the best candidate.

Even under Florida law – which overwhelmingly favors aggressive enforcement of non-compete agreements – a non-compete agreement on these facts should not be enforceable.  There small but powerful body of Florida case law that would support an aggressive defense to any claim based on similar facts.

One caveat:  As noted above, there are some exceptions.  Staffing agency non-compete agreements may be enforceable in the context of an exclusive placement contract.  Likewise, a staffing agency non-compete agreement might be enforceable if we aren’t dealing with a recruiter and – instead – are dealing with a high-ranking corporate official.  For instance, suppose the president of large staffing company jumps ship.  Then, there would be a stronger chance of courts enforcing the non-compete agreement (likely to protect confidential corporate information, e.g., strategic plans, financial data, etc).

Bottom line:  In most instances, you can mount a strong defense to staffing agency non-compete agreements — even under Florida law.

Jonathan Pollard is a trial lawyer and litigator based on Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims.  Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC, the National Federation of Independent Business and The Tampa Bay Times.  He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.

Florida Non-Compete Agreements: Choice of Law

Non-compete litigation is complicated.  And the legal doctrine called choice of law represents yet another wrinkle in an already complicated landscape.

All non-compete cases arise from contracts: either employment agreements or agreements governing the sale of a business.  These contracts almost always contain provisions that indicate where a dispute will be resolved (i.e. forum selection clause) and what law will apply (i.e. a choice of law provision).  Often, the choice of law provision will provide for the law of the forum state.  For instance, a contract will state that the forum is Miami-Dade County, Florida or the United States District Court for the Southern District of Florida and that Florida choice of law will apply.

In non-compete cases, choice of law is particularly important because of extreme variations in non-compete law from one state to the next.  In non-compete cases involving Florida, this principle takes on tremendous importance because of the draconian nature of Florida’s non-compete law.  To put things into perspective:  Florida courts routinely and aggressively enforce non-compete agreements through issuing preliminary injunctions.  Compared to other states, Florida is the most aggressively pro non-compete state in the entire country.  A party faced with defending a non-compete case would almost always have better odds under the law of another state.  From experience, I can list numerous states where non-compete law is generally more favorable: California, Oklahoma, North Dakota, Illinois, Indiana, North Carolina and New York  In light of this, the impact of choice of law is clear:  The party who may eventually need to enforce a non-compete agreement (e.g. the employer or the acquirer of a business) wants the parties to contractually agree to the most favorable, pro-enforcement choice of law.  This means Florida law.  So, if the parties have any connection whatsoever to the state of Florida, you can expect a Florida choice of law provision. But just because a contract says Florida choice of law applies does not make it so.

Some people wrongly conflate forum selection clauses and choice of law provisions.  Although forum selection clauses are almost always enforceable, choice of law provisions are often subject to attack based on principles of choice of law and conflicts of law.

It happens more often than you think:  A company that has limited ties to Florida tries to use a Florida choice of law provision in a contract containing restrictive covenants.  Here is an example from a recent case: A Delaware corporation with its principal place of business in Texas had an employee who lived and worked in Minnesota sign a non-compete agreement governed by Florida law.  Their argument for Florida law: One of the company’s officers lived in Florida.  Ultimately, the court ran a choice of law analysis and concluded that there was no reasonable basis for applying Florida law.  Instead, the court applied Minnesota law and found that under Minnesota law, the non-compete provisions at issue were unenforceable.  You can read more about that case here, on the non compete blog. 

The Bottom Line:

(1) Choice of Law Matters:  In non-compete litigation, perhaps more than in any other substantive area of law, choice of law matters.  A non-compete agreement that could be aggressively enforced under Florida law may be entirely unenforceable under the law of a different state.

(2) Run the Choice of Law Analysis:  In any non-compete dispute, you should consider the impact of choice of law and conflicts of law.  This means conducting a thorough analysis that considers the selected law, connections to that law and possible conflicts between other interested states.

Ultimately, litigating these sorts of cases requires counsel who has significant knowledge of comparative law of restrictive covenants (i.e. state to state variations in non-compete law) as well as a firm understanding of choice of law and conflicts of law principles. If you are faced with a non-compete dispute that potentially involves a choice of law issue, please contact our office at 954-332-2380.

Jonathan Pollard is a trial lawyer and litigator based on Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims. Jonathan routinely represents doctors, corporate executives, high level employees who are switching companies, or, who have started their own ventures and individuals who have sold businesses.  Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC, the National Federation of Independent Business and The Tampa Bay Times. He is licensed in all Florida state courts, United States District Courts for the Southern District of Florida, Middle District of Florida and Northern District of Florida and the Eleventh Circuit Court of Appeals.  He routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.