Over the past several years, we have witnessed an explosion in non-compete litigation. This conclusion is not only based on anecdotal evidence, but also on hard numbers. In fact, just recently, the Wall Street Journal ran an article titled Litigation Over Non-Compete Clauses is Rising, and backed up this claim with compelling statistics. The following considerations apply when defending non-compete cases in Florida, although some of these principles are broadly applicable to defending non-compete cases anywhere:
(2) Consider a Declaratory Judgment
After receiving a cease and desist letter, but before the other side sues, consider a declaratory judgment. This is often effective where a specific, readily ascertainable fact can be used to defeat the non-compete agreement. Disputes where an issue of duration, geographic scope, and even industry scope (to a lesser degree) are all good candidates for a declaratory judgment action. Example:
The non-compete agreement contemplates a 50 mile radius of any of the Company’s locations at which the former employee worked. Although the Company has offices all over Florida and the Southeast, the employee only worked at locations in Miami and Fort Lauderdale. The employee left the Company and went to work for the Competitor in Jupiter, Florida. The Company finds out, sends a cease and desist letter and threatens to sue. In this scenario, the employee is clearly outside of the radius. An action for a declaratory judgment may be effective.
One of the benefits of suing first: In some instances, where things like forum selection or choice of law may be in doubt, the party that sues first can influence where the case is litigated and the governing law. We see these sort of strategic moves all of the time. The classic example is where the former employee sues in California and argues that the non-compete agreement’s choice of law and forum selection clauses should not be honored because the result would be contrary to California public policy (which bans employee non-compete agreements). This is the proverbial race to the courthouse— but this California strategy usually fails.
A more realistic example: A non-compete agreement calls for venue in “the courts of Volusia County, Florida.” The former employee and the new company get hit with a cease and desist letter threatening a lawsuit. If the former employee and the new company allow this to play out naturally, they’ll be tasked with defending a lawsuit in Volusia County Court. There are no federal courts in Volusia County. So the former employee is locked into Volusia County by the forum selection clause. So what’s the play? If there’s diversity, the new company can go into federal court and sue for a declaratory judgment. Maybe the old company will try to get the case dismissed based on the forum selection clause contained in the employee’s non-compete agreement and the closely-related to doctrine of forum selection clauses. Then again, maybe the old company will file an answer or motion to dismiss the federal case, and effectively waive its arguments on inappropriate venue.
Another realistic example: ABC Company is a Minnesota corporation, but has offices and sales people throughout the country. John Smith works for ABC in North Carolina. The non-compete agreement calls for venue in Florida and Florida choice of law. Why? Because Florida law of non-compete agreements tends to be more favorable to the party seeking enforcement. John Smith can go into North Carolina federal court. We have diversity— Smith is a citizen of NC, ABC is a citizen of MN and possibly its principle place of business (if that differs from MN). So Smith can file suit for a declaratory judgment in, say, the Eastern District of North Carolina. The benefit? First, NC may not like ABC’s fairly ridiculous attempt to get the benefit of Florida law when neither party is a citizen of Florida, any ties to Florida are too attenuated and both MN and NC have much more restrictive laws re non-compete agreements. NC might say the forum selection clause and choice of law provisions are invalid and the case will be litigated in NC under NC law. At this point, with Smith having filed a declaratory judgment action, ABC is far less likely to find any way to get the case in Florida court. Although this is just a hypothetical, it draws certain of its facts from the recent Harley case out of Minnesota, which is covered on my main non-compete blog.
Bottom line: Consider all of your options, including an action for a declaratory judgment.
Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida. He focuses his practice on competition, particularly cases involving non-compete, trade secret and antitrust disputes and represents clients in Florida and throughout the country. He is licensed in all Florida federal and state courts and routinely represents clients in Fort Lauderdale, Miami, West Palm Beach, Boca Raton, Fort Myers, Tampa, Orlando, Jacksonville, and Sarasota. His office can be reached at 954-332-2380.