In Florida, a party opposing enforcement of a non-compete agreement may raise as a defense that the employer, or other enforcing party, no longer continues in the same business. Florida Statute § 542.335(1)(g)(2) provides that a court:
may consider as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant only if such discontinuance of business is not the result of a violation of the restriction.
Florida’s Second District Court of Appeal recently addressed the cessation of business defense in Richland Towers, Inc. v. Denton, et al., 139 So. 3d 318 (Fla. 2d DCA 2014). In Richland, two key employees left their employer to start a competing business. The employees had previously signed non-compete agreements which precluded the employees from engaging in a competing business during their employment and for a period of time after their departure.
The employer in Richland brought suit against the employees, alleging breach of their employment agreements and seeking an injunction. The employees raised several defenses, one being that their former employer, Richland Towers, Inc., was no longer in business, rendering the non-compete agreements unenforceable.
The trial court rejected the employers’ cessation of business defense and the appellate court agreed. The Richland court recognized the defense where an employer no longer continues in the same business if the discontinuation was not caused by the employee breaching the non-compete agreement. The cessation of business defense did not apply in Richland because the employees’ former employer designated a third party beneficiary, Richland Towers, LLC, who stood in the shoes of Richland Towers, Inc.. Although the employer, Richland Towers, Inc., ceased doing business in 2008, the non-compete agreements that restrained the employees were valid through 2011. Equally important, the employment agreements identified the new entity, Richland Towers, LLC, as a beneficiary under the agreements. Even though the original employer was no longer in business, the non-compete agreements remained valid and enforceable against the employees.
W Mason is a partner with Fox Rothschild LLP and serves in the Firm’s Litigation and Financial Services Industry departments in Fox Rothschild’s West Palm Beach office. An accomplished business trial attorney, W represents both plaintiffs and defendants in state and federal courts in employment disputes involving restrictive covenants, shareholder disputes, contract disputes, banking litigation, fraud claims, Uniform Commercial Code (UCC) claims, and other commercial disputes.
Below are some of W’s recent posts on Florida Noncompete Agreements: