Protecting the Rights of Workers
and All Employee Rights Cases
REPRESENTING THE EMPLOYEE IN RESTRICTIVE COVENANT DISPUTES
Restrictive covenant (covenants not-to-compete) litigation involves very high stakes, particularly for the employee who faces a temporary, or perhaps permanent, loss of his or her livelihood. Not only is it often expensive and time-consuming, but also emotionally and financially draining. Thus, at the beginning of the representation, the attorney representing an employee who may be bound by a covenant not-to-compete should carefully review and consider the merits of the litigation, as well as the short-term and long-term business ramifications for the client.
An employee must contend with many concerns when faced with restrictive covenant litigation. Being cognizant of the time, expense and commitment required, the most prudent course is for the employee to consult with counsel early and work out a plan of action before he or she leaves the place of employment. In view of the high stakes involved, all defenses to injunctive relief should be investigated and vigorously pursued. See Successfully Defending Employees in Noncompete and Trade Secret Litigation, The Florida Bar Journal, April, 2004.
This page will discuss some of the issues and decisions to be confronted and the determinations to be made in such litigation.
Probably the most important strategy decision to employ when faced with an application for injunctive relief is to take the offensive immediately. The employee must attempt to turn the tables on the employer in order to gain a tactical advantage. Therefore, an employee who may be faced with the threat of imminent litigation through the filing of an injunction for alleged breach of a restrictive covenant may wish to consider a preemptive strike: filing a motion to dissolve or commencing a declaratory judgment action, which would seek a determination of the enforceability of the restrictive covenant and a declaration of its invalidity, and also may raise other related issues and claims. If a non-final appeal is necessary, it should be considered that in cases where there are no disputed factual matters at issue, the appellate court will review the injunction de novo. And, although the interpretation of a covenant not-to-compete is a matter of law to be resolved by a trial court, an appellate court is nevertheless empowered to undertake an independent assessment of the covenant's meaning. Thus, an appellate court is not restricted in its ability to reassess the meaning and effect of the parties' non-competition agreement and to reach a conclusion which differs from that of the trial court.
As the purpose of an injunction is to prevent irreparable harm, one such tactic is to show that the employer will not be irreparably harmed absent the injunction. However, where a plaintiff sufficiently demonstrates that a former employee is contacting its customers, the presumption of irreparable injury attaches.
In addition, one of the requirements for the issuance of an injunction is a showing that success on the merits is likely. In Cordis Corp. v. Prooslin, the court held that there was no abuse of discretion in denying a temporary injunction where the record showed doubt that the employer had the ability to succeed at trial. Accordingly, any available factual and legal arguments should be made which show that the claims have little, if any, chance of success. Furthermore, a showing that the former employer does not have a legitimate interest to protect and/or that the restrictive covenant does not reasonably protect that interest will go a long way toward casting doubt on the employer's right to an injunction.
It should be kept in mind that the ultimate goal is to declare the restrictive covenant invalid, and, if appropriate, to recover on the employee's counterclaims. Therefore, that individual must have "clean hands" and be prepared to show the Court that no improper actions were committed in connection with his or her former employment. Any arguably wrongful actions by the employee during the course of the litigation must be avoided at all costs.
The most effective defense to a non-compete agreement is that the employer materially breached the contract between it and the former employee prior to the employee's alleged breach, thereby obviating any obligation on the part of the employee to comply with same. Florida law holds that an employer's material breach of an employment contract is a relevant factor in determining whether an employer is entitled to a temporary injunction enforcing a covenant not to compete. In the case Cordis Corporation v. Prooslin, 482 So.2d 486 (Fla. 3d DCA 1986), the court affirmed the trial court's decision to deny a temporary injunction where there was evidence that the employer's breach of the underlying contract cast doubt on whether or not the employer was clearly entitled to success on the merits. The Prooslin court recognized that if an employer is in breach or default under an agreement or when he gives good cause for a former employee's non-performance he has no standing in equity to seek an injunction. The Prooslin court noted that the trial court's discretion in granting a temporary injunction should be guided by established rules and principles of equity jurisprudence. In the case of Troup v. Heacock, 367 So.2d 691 (Fla. 1st DCA 1979), the appellate court reversed the trial court's decision that granted a motion for temporary injunction. The appellate court noted that the employer had materially breached the employment contract and therefore the covenant not to compete was unenforceable by the employer. The Troup court stated that if the injunction were allowed to stand not only would it be contrary to equity but it would result in inverse peonage. Numerous other Florida cases have recognized the a prior material breach by an employer will discharge an employee from abiding by a covenant not to compete. Generally Seaboard Oil Co. v Donovan, 128 So. 821 (Fla. 1930); Sarasota Beverage Company v. Johnson, 551 So.2d 503 (Fla. 2d DCA 1989) (en banc); Channell v. Applied Research, Inc., 472 So.2d 1260,1262 (Fla. 4th DCA 1985); Thomas v. Fed, Ins. Agency, 51 B.R. 653 (Bankr. M.D. Fla. 1985).
Similarly, whether the employee while employed was subjected to discrimination and/or employment actions which were illegal or against public policy may create a defense toward enforcement of a covenant or other duty under the doctrines of unclean hands, or equitable estoppel, etc. Moreover, the employer's subsequent actions (i.e., anti-competitive activity, tortious interference, etc.) arguably could prevent it from obtaining the relief sought under these theories. In Lee & Associates, Inc., of North Florida v. Lee, the court held that where the specific contract language provided, a covenant not-to-compete in an employment contract did not apply to the employee who was not discharged for good cause and did not voluntarily leave his employment. Violations of the Fair Labor Standards Act/Overtime, is a frequently used defense to enforcement of a non-compete agreement.
Obviously, all monetary and breach of contract claims should be asserted specifically. These may include claims for payment of salary, severance pay, commissions, expense reimbursement, vacation and sick pay, etc.
An employee must contend with many concerns when faced with restrictive covenant litigation. Being cognizant of the time, expense and commitment required, the most prudent course is for the employee to consult with counsel early and work out a plan of action before he or she leaves the place of employment. In view of the high stakes involved, all defenses to injunctive relief should be investigated and vigorously pursued.
If you have questions or concerns regarding Non-Compete Agreements, Contract Reviews, and other Labor and Employment Law, please contact Orlando Attorney - Lawyer N. James Turner.
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