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Proving a Non-Compete Agreement without a Copy of the Agreement

By:  Matt McLauchlin

The first requirement for an enforceable non-compete is a written agreement signed by the party against whom it will be enforced.  There are no “verbal” or unwritten non-compete agreements.  This seems basic enough and should be easily achievable.  However, as in any case relying on the existence and actual execution of certain documents, this can be a heavily litigated issue.

For instance, many employers find themselves without an enforceable non-compete agreement because they have incorporated poor business practices and failed to ensure that their documentation was maintained and up to date.  Employers might include non-compete clauses in an employee handbook or manual but may fail to have their employees actually sign or initial the pages containing the non-compete portion, with a signature appearing only at the end of the manual or in separate place.  Questions therefore may arise as to whether the employee has actually signed the non-compete.  Likewise, employers often make significant changes to their businesses’ corporate structures and may fail to modify or renew an employee’s non-compete to apply to the newly formed company of which the employee is now employed.

Employers also often misplace their fully executed non-compete agreements.  If this occurs, the employer still has the right to seek to prove the terms of the written contract.  Florida law permits the introduction of parol evidence to prove the contents of a contract where the proponent provides a satisfactory explanation that the original contract was lost or destroyed. § 90.954(3), Fla. Stat. (2008); Ins. Co. of State of Pa. v. Genova Exp. Lines, Inc., 605 So.2d 941, 942–43 (Fla. 3d DCA 1992).   This is what occurred in Envtl. Services, Inc. v. Carter, 9 So. 3d 1258, 1267-68 (Fla. 5th DCA 2009).  There, the employer sought to enforce a non-compete against its former employee but could not find the actual document the employee signed.  The employee admitted signing some agreement but claimed not to be able to recall its terms.  The employer was unable to produce the actual document or a copy of it. The employer claimed the document was lost and tried to establish its contents through an employee who testified that the employer only used one form of the agreement since 2005. The trial court refused to enforce the agreement against the employee, citing Section 542.335 and the requirement of a signed writing.

The appellate court reversed on the grounds that Section 90.954(1), Florida Statutes (2008), provides that the original of a writing is not required and other evidence of its contents is admissible when “all originals are lost or destroyed, unless the proponent lost or destroyed them in bad faith.” The court further noted that “[a]s a general rule, the loss or unintentional destruction of a written document does not affect the validity of the transaction of which it is the evidence, or the rights and liabilities of the parties to the instrument.” Id.  The court also noted that “[w]hile it would be preferable to reestablish the written instrument in the manner authorized by section 71.011, Florida Statutes (2008), the failure to do so is not fatal to ESI’s attempt to enforce the agreement against [the employee] [], provided that the trial court is satisfied as to its essential terms.” Id. (citations omitted). 

Often, an employer may have misplaced a copy of the executed non-compete but will have a blank form of its standard non-compete that it requires its employees to sign.   In that case, the employer may and should use that form to establish the terms of the non-compete against the employee in conjunction with testimony of a witness competent to testify that the employee actually signed the document.  See Action Fire Safety Equip., Inc. v. Biscayne Fire Equip. Co., 383 So.2d 969 (Fla. 3d DCA 1980) (holding that form non-compete agreement was properly admitted in enforcement action where employer established only one agreement was utilized and employee’s signature on agreement was witnessed and original was within control of adverse party).”); United Subcontractors, Inc. v. Godwin, No. 11-81329-Civ, 2012 U.S. Dist. LEXIS 67061, at *6-9 (S.D. Fla. Feb. 3, 2012) (in the event of lost written agreement, such agreement may be proved up via credible testimony, use of standardized forms, standard company practice, etc.).

PRACTICE TIPS:

  1. Use a standard form of non-competition agreement when appropriate for similarly situated employees and retain your standard form. If you lose a particular employee’s form, you may still be able to prove the terms using a blank form containing all of the terms, supported by eyewitness testimony that the employee signed the document.
  2. Save copies of the non-competition agreement signed by your employee in a safe place with multiple backups. Cloud based document management programs like Dropbox are always a great choice.
  3. You do not need the “original” of the agreement for it to be enforceable, but an original is always preferred.
  4. Make sure you have reliable, loyal witnesses who can testify that they have witnessed the employees’ signing of your non-competition agreements.
  5. Have your employee initial each page of a non-compete agreement and sign it with witnesses’ signatures at the end.

 

Are Non-Competes Really Enforceable?

By:  Matt McLauchlin

It never ceases to astound me when I get this question.  And, I get it all the time.  Really.  Many otherwise sophisticated business people suffer under a misimpression that “they heard” that non-compete agreements “aren’t worth the paper they were written on.”  This misimpression may have its roots in the fact that society’s level of acceptance of non-competition agreements has ebbed and flowed over time, and the laws on the enforceability of non-competes have not always been favorable.  Also, the enforceability of non-compete agreements varies from state to state, and some jurisdictions apply more intense rigor and scrutiny to non-compete agreements.

But, in Florida, where I practice, the answer to the question, “Is a non-compete really enforceable?” is an emphatic, “Yes.”  Florida has a statute, Section 542.335, that expressly allows non-compete agreements and provides a set of guidelines for their enforcement.  And, unlike many other states, Florida will not strike down an otherwise valid non-compete agreement if the drafter happens to draft the geographic scope of the restriction too broadly or makes the restriction last for too long a period of time.  In other words, if necessary, the Florida courts will work to help fashion an enforceable non-compete agreement.  And Section 542.335 precludes a court from considering some of the typical employee defenses.  So, yes, non-competes in Florida are enforceable and are routinely enforced by Florida’s courts.

What is the upshot?

If you are an employee and are presented with a non-compete agreement governed by Florida law to sign, make sure you review it with an attorney and decide whether you can live with its restrictions if you later on decide to leave your employer’s employment.  Because, the chances are, it will be enforceable.

If you are an employer and have employee relationships, substantial customer relationships, confidential business information, or other intellectual property or trade secrets you want to protect from being taken from you by departing employees, you need to have your employees sign a non-compete.  If you don’t protect yourself with a proper non-compete agreement, your employees are free to leave, move next door, open up the same type business and solicit and take your best customers.  As one Florida court succinctly put it:

“… competition for business is to be expected from former employees who are not bound by a non-compete contract.”

Langford v. Rotech Oxygen & Medical Equipment, Inc., 541 So.2d 1267, 1268 (Fla. 5th DCA 1989) (emphasis added).

If you are an employer, call an attorney to assist you in drafting an enforceable non-compete agreement.  If you are an employee, have an attorney review and analyze your agreement and perhaps help make modifications or limitations to any non-compete agreement you are asked to sign.

 

 

What does it mean to “Solicit” a Former Employer’s Customers?

By:  Matt McLauchlin

In suits to enforce non-solicitation agreements, departing employees often argue they did not “solicit” the business of their former employers’ customers.  They often claim that the customers themselves contacted them and voluntarily switched their business over of their own accord.  Therefore, they contend, they did not “solicit” the customers and are not in violation of their non-solicitation covenants.

While this argument has some surface appeal, it often ultimately fails if the employee has taken any proactive steps, as is usually the case, to follow up with the customers to take on their business after being contacted by the customer.  A leading Florida case on this issue is Scarbrough v. Liberty National Life Insurance Co., 872 So.2d 283, 285 (Fla. 1st DCA 2004).  There, the First District Court of Appeal discussed the situation where former clients initiate contacts with employees at their new place of business.  The court explained that “solicitation” can include a transaction in which the employee was proactive, regardless of whether the customer or employee initiated the transaction.

The Fifth District Court of Appeals in Envtl. Servs., Inc. v. Carter, 9 So.3d 1258 (Fla. 5th DCA 2009), likewise recognized that a “solicitation” by an employee can exist in violation of a non-compete agreement “regardless of whether the customer or employee initiated the transaction.”  Envtl. Servs., 9 So. 3d at 1266.

Given the arguments that can arise over the term “solicitation,” the practitioner drafting a non-solicitation provision should include other terms in addition to “solicit.”  To affirmatively preclude any possible debate over whether the employee engaged in improper “solicitation,” a customer-focused restrictive covenant should go farther and include other specific restrictions such as “provide services for,” “accept the business of,” “take,” or “procure the business of” the former employer’s customers.  In this way, there can be no argument as to whether the employee’s contacts with the customers were proactive enough to constitute an improper solicitation.  Such additional restrictions will be enforced under a proper factual foundation. See Joseph U. Moore, Inc. v. Neu, 500 So.2d 561 (Fla. 2d DCA 1986) (upholding covenant that proscribed soliciting and procuring of business of former employer’s customers); Joseph U. Moore, Inc. v. Howard, 534 So.2d 935 (Fla. 2d DCA 1988) (upholding covenant that proscribed soliciting or accepting former customers); Sabina v. Dahlia Corp., 650 So.2d 96 (Fla. 2d DCA 1995)(rejecting injunction which prohibited “‘procuring’ of insurance” as it went “beyond enforcing the plain language of the covenant which proscribes ‘calling upon or soliciting'” and stating that a broader covenant precluding the procuring of insurance would have been enforceable had it been drafted in that manner).

For additional information, please contact Matt McLauchlin.