Contracts that Prohibit Competition

 Even though we live in a capitalistic society that favors competition, contractual limitations between competitors are a legal reality in the State of Florida.  The consensus in this country is that competition stimulates quality products and services which benefit the consumer.  On the other hand, our legislature has acknowledged  a need to allow the enforcement of contractual terms that prohibit competition between private parties.  The Florida legislature tried to establish a balance between the right of the individual to earn a living and the rights of a businessmen to protect their trade secrets and confidential business information.  In 1996, the Florida Legislature approved Section 542.335 codifying the aforementioned balance of interest.

Because the legislation is somewhat complicated, I can only offer a general idea of its framework.  It is important, however, that all business owners be aware that this mechanism is available and can be useful in protecting their intellectual property and confidential business information.   In turn, employees should likewise be aware that, under certain circumstances, an employer can limit their right to work in the field of their choice. 

The law acknowledges that most entrepreneurs accumulate  confidential information during their commercial endeavors that affords them a competitive advantage in the market.  This legislation recognizes that business owners have a right to protect this information through the judicial process.   As long as there is a written agreement between the employer and the employee prohibiting competition in a certain specific geographic area and/or for a reasonable period, the court can order the employee to terminate the employment that competes with his/her former employer.

 These contractual terms are also commonly utilized in the purchase and sale of existing businesses because it serves to protect the buyer from unfair competition by the seller.   A purchaser of an existing business that does not demand a covenant not-to-compete in the purchase and sale agreement runs the risk of  significant financial losses as a result of unfair competition from a seller. 

Even though the Legislature intended to avoid unfair competition, many judges have opted to implement the specific terms of the employment agreement regardless of the serious financial losses suffered by the employee that is compelled to terminate a subsequent employment.  I have handled multiple cases of this nature and firmly believe that a well-drafted agreement could achieve the fair balance that was intended by the legislation.   Accordingly, I highly recommend that any person contemplating entering into a covenant not-to-compete agreement consult with a professional experienced in dealing with this unique piece of legislation.

Luis A. González
Attorney and Mediator
L. A. González Law Offices, P.A

(407) 649 - 8389
laglaw@cfl.rr.com