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.