Law360 (July 7, 2020, 2:52 PM EDT) --
How is it fair that employees who've signed noncompete agreements can still be bound by them if they've been laid off due to COVID-19, especially when the nation's economic environment is devastated and jobs are limited? The equities must lie in the employees' favor, right?
In Florida, though, all of that is irrelevant. The fact that an employee was laid off due to COVID-19, should have no legal impact on the employer's ability to enforce its noncompete agreement against its employees. Quite simply, there is no such thing as a fairness, or similar, defense under Florida law.
Compared to most states, many of which do not even have a statute on the issue, Florida has one of the most comprehensive statutory schemes pertaining to noncompete agreements. Specifically, it's Florida Statute Section 542.335 — valid restraints of trade or commerce.
In the employment context, the statute provides that any employer "seeking enforcement of the restrictive covenant must plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction."
There is no limit to what can constitute a legitimate business interest, although the statute lists some of the more common ones, such as trade secrets; valuable confidential business or professional information that otherwise does not qualify as trade secrets; substantial relationships with specific prospective or existing customers; or extraordinary or specialized training provided to employees.
So long as the employer demonstrates a legitimate business interest justifying the restriction, the agreement should be enforceable.
Note: Florida Statute Section 542.336, enacted in 2019, slightly changed Florida law regarding the enforceability of noncompete agreements involving physicians but that is outside the scope of this article.
Indeed, if the employee is found to have violated a valid agreement, this creates a statutory presumption of irreparable injury to the employer, likely entitling it to an injunction, unless the employee can rebut the presumption. The statute allows the employee to attempt to oppose enforcement by establishing the contractually specified restraint is overbroad, overlong or otherwise not reasonably necessary to protect the employer's legitimate business interests.
But even if the employee succeeds in meeting that burden, the agreement must still be enforced, though the court is statutorily permitted to modify its terms to make them narrower in scope, but still grant the relief it determines is reasonably necessary to protect the employer's interests.
In our COVID-19 era, employees may attempt to argue they should be allowed to work for a competing company because the layoff was caused through no fault of their own, available job opportunities are minimal with so many businesses shutting their doors, and the financial harm caused by the layoff is severe. However, while this presents a sympathetic case, Florida's statute provides little solace for the employees.
In fact, it does the opposite. In determining the enforceability of a noncompete agreement, the statute states that "a court shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought." In other words, the financial impact to the employee resulting from the layoff is completely immaterial as a defense.
Some may try to argue it would be against public policy to enforce it under these extraordinary COVID-19 times. While Florida's statute contemplates a possible public policy defense, it is very difficult to prove.
The statute provides:
Therefore, it is unlikely a COVID-19 layoff will translate into a successful public policy argument that overrides an employer's need to protect its legitimate business interests. In short, a layoff is a layoff, similar to a termination without cause.
No court may refuse enforcement of an otherwise enforceable restrictive covenant on the ground that the contract violates public policy unless such public policy is articulated specifically by the court and the court finds that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests established by [the employer].
Despite the fact that both generally occur through no fault of the employee, Florida's courts have routinely enforced noncompete agreements in those circumstances. Trial judges are not swayed, or at least, should not be swayed, by the argument that a COVID-19 layoff is different than any other type of layoff.
Although a COVID-19 termination does not shield an employee against an enforcement action, there are still a number of practicalities an employer should consider before pursuing an employee for breach — and this applies regardless of whether the layoff was related to COVID-19.
This includes answering questions, such as:
- How valuable was the employee who is now looking to compete?
- Was anything of value actually taken by the employee?
- Does the financial cost to enforce the agreement outweigh the achievable benefits?
- Has the competing company for whom the employee now works suddenly gained an unfair competitive advantage by hiring that employee?
- What is the overall likelihood of success?
Lastly, an employer should take into consideration how pursuing this type of action could hurt their public image, especially when many are already suffering due to the pandemic.
So although a COVID-19 layoff is not a legally viable defense to enforcement, it is still wise for Florida employers to consider these real-world factors before deciding whether to enforce their noncompete agreements.
Alan L. Goodman is a shareholder at GrayRobinson PA.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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