The Value (or Not) of a Non-Compete Agreement

THE VALUE (OR NOT) OF A NON-COMPETE AGREEMENT

By: Robert S. Tanner, Esq. and Larry R. Leiby, Esq.

About the Author: Larry Leiby, Esq. was the founder and first chairman of the Florida Bar Construction Law Committee in 1976. He is the author of the Florida Construction Law Manual. He is Board Certified in Construction Law and was on the Construction Law Certification Committee that creates and grades the tests for construction law board certification. He was awarded the lifetime achievement award by the Florida Bar Construction Law Committee and teaches construction law at the Florida International University College of Law. He can be reached at leiby@mkpalaw.com. For more information, please visit www.mkpalaw.com.

In Concrete Surface Innovations, Inc. v. McCarty, 2010 WL 1930971 (M.D. Fla. May 13, 2010), Concrete Surface Innovations, Inc. ("Contractor") employed Michael McCarty ("Employee") to perform and supervise concrete floor repair and refinishing. Employee had worked in the industry for eight years prior to joining Contractor's employment. During his employment with Contractor, Employee received certification from Metzger-McGuire that allowed him to purchase its epoxy used in concrete renovations and repairs. Wal-Mart and Sam's Club limited contractors to the Metzger-McGuire and another manufacturer's epoxies in their renovation projects. Contractor specifically pursued concrete renovation work from Wal-Mart and Sam's Club.

Employee signed a Non-Competition Agreement in favor of Contractor which provided that for three years after his employment with Contractor, Employee would not be employed by or otherwise compete in a business similar to Contractor's within a 50 mile radius. Employee also agreed that for the same three year period he would not disclose "Confidential Information" and would not solicit Contractor's present, former or prospective customers. Employee left Contractor's employ and was hired by another contractor ("SCI Floors") to perform work similar to that which he had performed for Contractor. Within three years of leaving Contractor and while employed by SCI Floors, Employee worked on two Wal-Mart or Sam's Club projects. He also attempted to purchase the special epoxy from Metzger-McGuire. Contractor filed an action seeking an injunction and damages, alleging that Employee violated the non-compete agreement.

In ruling upon Contractor's request for an injunction, the trial court noted that agreements restricting post-employment activities may be enforced but they are a "small exception to otherwise prohibited restraints on commerce." Florida Statutes establish various factors an ex-employer must prove to enforce a non-compete agreement. One of them is "the existence of one or more legitimate business interests justifying the [non-compete agreement]." Under the statute, the term "legitimate business interest" includes trade secrets, valuable confidential business or professional information, substantial relations with specific prospective or existing customers and clients, and specialized training.

Contractor argued that the restriction on Employee's subsequent employment was justified because it was necessary to protect Contractor's legitimate business interests arising from the specialized training that Employee received and Contractor's substantial relations with Metzger-McGuire, among other things. The trial court found that the Metzger-McGuire certification was, on its face, only valid when Employee was in Contractor's employee. So, even though Employee attempted to procure the epoxy pursuant to the certification he had received while working for Contractor, Metzger-McGuire refused to supply it to him after he had left Contractor. Additionally, Metzger-McGuire was a vendor and did not fall into the category of a client or customer with whom Contractor could have a "substantial relationship" protected by a non-compete agreement with Employee. Further, the trial court found that Contractor had not shown that the training it had provided had been "extraordinary or specialized" based upon Employee's affidavit statements that he received his concrete repair training in the years before working for Contractor.

The trial court also found that Contractor failed to prove that Employee had breached central terms of the non-compete agreement. For example, Contractor was required to prove that Employee had competed within 50 miles of Contractor's main office, satellite office, or projects. The court ruled that the fact that Employee's subsequent employer's office was within 50 miles of Contractor's headquarters did not necessarily constitute a competitive activity prohibited by the agreement. Contractor simply failed to show that Employee had, in-fact, competed within the 50-mile radius. The trial court denied Contractor's request for an injunction.

Non-compete agreements can be a powerful means of protecting sensitive business methods information and business relationships. However, due to the strong public policy against such agreements, they must be carefully drafted both to comply with the governing statutes (and interpretive case law) and to cover the actual facts and circumstances.