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A Closer Look at F.S. § 542.335 – Florida’s More Recent Statute Governing Non-Compete Agreements

Posted in Labor & Employment

In a prior post, I discussed how Florida law governing non-compete agreements continues to evolve.  The Florida legislature has amended the relevant statutes several times over the years.  This post will look at the mot recent statute – F.S. § 542.335, and consider issues such as (i) what is required for a non-compete agreement to be enforceable under the current statute; (ii) what the enforcing party must prove for the court to enforce an agreement; and, (iii) look at examples of “legitimate business interests” which are subject to protection under the statute. 

In a recent opinion, Wellcare, et al, v. Preitauer, No. 8:12-cv-713-T-30MAP (M.D. Fla. May 23, 2012)(the “Opinion”), the United States District Court for the Middle District of Florida (the “District Court” or “Court”), discussed in detail the legal parameters of F.S. § 542.335.  Wellcare involved a breach of contract action regarding a non-compete agreement between Wellcare (the “Employer”) and a former employee.  The Employer provides Medicare and Medicaid services.  The defendant-employee (the “Employee”) was responsible for the expansion of the Employer’s government sponsored healthcare program in Hawaii.  The Employer sought an injunction against the Employee for the use or disclosure of purported trade secrets.  Opinion at *1.  

After assisting the Employer with its Medicare expansion program in Hawaii, the Employee began working for one of the Employer’s competitors.  The Employer sought an injunction against the Employee barring him from working for the competitor.  In denying the Employer’s request for injunction, the Court provided a good analysis of the factors a court should consider in deciding whether to grant an injunction under Florida’s current statute governing non-compete agreements. 

Florida Statute § 542.335(1) permits enforcement of non-compete agreements even though the agreement restricts or prohibits competition.  However, in order for a non-compete agreement to be enforceable, the terms of the agreement must be reasonable in time, area and line of business. Opinion at *2.  Before a court can grant injunctive relief under a non-compete agreement, it must first consider whether the enforcing party has established a “substantial likelihood of success on the merits” necessary for the court to issue an injunction. Opinion at *2.  In denying the injunction, the District Court found that the Employer failed to show any legitimate business interest which would warrant protection under F.S. § 542.335(1).  Id. 

A party seeking to enforce a non-compete agreement must also prove the existence of one or more legitimate business interests that justifies the enforcement of the agreement and that the restriction imposed by the agreement is reasonably necessary to protect those legitimate business interests.  Opinion at *2, citing F.S. § 542.335(1)(b) and (c)(Emphasis added).  Legitimate business interests include trade secrets, valuable confidential information,  substantial relationships with specific prospective or existing customers or clients, goodwill associated with a specific geographic area and extraordinary or specialized training.  Opinion at *3, citing F.S. § 542.335(1)(b).  

Substantial relationships, as one of the factors considered by a court under the “legitimate business interests” test, can be proven in many ways.  Under the statute, however, the relationships have to be with “specific prospective or existing customers, patients or clients.”  F.S. § 542.335(1)(b)(3).  In order for there to be substantial relationships that are entitled to protection, however, the party seeking to enforce the non-compete should show the potential for competition by the breaching party in the same markets as the employer.  Opinion at *3.  

Trade secrets are another “legitimate business interest” protected under F.S. § 542.335.  Under Florida Statute § 688.002(4), a trade secret is defined as information, including a formula, pattern, compilation, program, device, method, technique, or process that (1) derives independent economic value from not being generally known to and not readily ascertainable by others who can obtain economic value from its disclosure or use and (2) is the subject of reasonable efforts to maintain its secrecy.  Opinion at *4.  Information that is “generally known or readily accessible to third parties cannot qualify for trade secret protection.”  Id., citing American Red Cross v. Palm Beach Blood Bank, 143 F.3d 1407, 1410 (11th Cir. 1998).  

In order for a party to successfully seek protection of a trade secret, it first must establish that the material subject to protection is indeed a secret. Further, the party seeking enforcement of the non-compete agreement should, at a minimum, describe with some particularity the alleged confidential information that requires protection. Opinion at *4.  For a court to protect a trade secret through a non-compete agreement, the enforcing party should be prepared to prove that the breaching party had knowledge of the confidential information. Id.  Further, the confidential information should have been obtained by the employee while he was employed by the party seeking to enforce the agreement.  Id. 

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Jason Cornell is a partner with the law firm Fox Rothschild LLP.  Jason’s practice focuses on complex litigation in state and federal courts throughout Florida.  You can reach Jason at (561) 804-4415 or jcornell@foxrothschild.com.