Careless Drafting of Non-Compete Agreements Can Lead to Enforceability Problems
A recent Florida Appellate Court case highlights the need to carefully draft non-compete agreements. Heiderich v. Florida Equine Veterinary Services, Inc. In that case, the ex employee was prohibited from “owning, managing, operating, controlling, being employed by, assisting, participating in, or having any material interest in any business engaged in a general equine veterinary practice within 30 miles of the former employer.” The former employee opened an office just outside the 30 mile zone and treated patients, including those of the former employer, within the 30 mile zone. The former employer sought an injunction, but the Appellate Court found for the former employee. In doing so, it interpreted the relevant clause to prohibit the former employee from establishing a physical location within 30 miles, but it did not prevent the performance of competitive services within 30 miles.
Initially, the trial court found for the former employer. It found that “the [location of the] actual office is of no consequence. The issue is where she practices. The Court does not believe it was the intent of the parties to allow the doctor to set up an office just outside the 30 mile radius and allow her to treat her former employer’s clients within the restricted area.”
The former employee appealed and asked the higher court to interpret the plain language of the agreement, which she argued merely prevented her from owning or being employed by a business physically located within the 30 mile zone. Since her business was located more than 30 miles away, she met the strict terms of the agreement even though she practiced within 30 miles of her former employer.
In finding for the doctor and reversing the lower court, the Appellate Court relied on an earlier Appellate Court decision, Tam-Bay Realty, Inc. v. Ross, 534 So. 2d 1200 (Fla. 2d DCA 1988). In that case, an ex employee was prohibited from “opening, operating, serving as an officer, director or other employee of any real estate brokerage business located within Pinellas County.” The ex employee started a real estate business physically located in a neighboring county, but advertised and transacted business in Pinellas. The court there found that because the ex employee had not opened or operated a business physically located in Pinellas County, no violation had occurred, even though the business provided services within Pinellas.
Like the court in Tam-Bay, the Heiderich Court found the ex employee was permitted to provide services within the 30 mile zone, and doing so did not violate the agreement because her new practice was physically located more than 30 miles from her prior employer.
These findings are somewhat surprising given that the applicable Florida statute covering non-competes favors former employers, and must be construed in favor of enforcement. Section 542.335(1)(h) Fla. Stat. requires the court to construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires it to read the restriction narrowly, or against restraint, or against the contract drafter.
While properly drafted non-competes and other restrictive covenants are generally enforceable, there are signs that they may be losing legislative and judicial favor, especially in this difficult economy. For instance, the Connecticut legislature recently attempted to pass an Act that would have subjected non-competes to pre-execution legal review to be binding. While a watered down version was eventually passed, Governor Malloy vetoed the bill. However, he encouraged legislators to reconsider the issue in the next session when some of his technical concerns could be better addressed.
The takeaway here is that careful drafting is necessary to protect important rights through enforcement of non-compete, non-solicitation, and non-disclosure agreements. Conversely, sloppiness may lead to unintended consequences.
