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.