Consider this scenario: After endless looking and interviews, you have landed the job. Relieved that your searching is over and excited about the prospects of your new position, your enthusiasm is only mildly curbed by the stack of first-day paperwork that new employees encounter, such as an IRS Form W-4, benefits enrollment form, etc. Then, you read the last document in which you promise not to work for any competitor in the state for a period of two years after your termination.
Now, consider this scenario: You are the founder and CEO of a small, privately owned pest control business that has achieved success through superior customer service and competitive pricing. You need to hire additional sales representatives and field technicians to keep up with demand and grow your business. Training your new employees means arming them with pricing guidelines and field procedures; however, you are concerned that once they are trained and connect with customers, they could use that information and training to start a competing business or work for a direct competitor.
Out of necessity, companies entrust employees with sensitive information. Confidentiality agreements and non-compete agreements (NCAs) are contractual tools that employers may use to ensure that the company’s confidential information remains where it belongs — with the company. Examples of such confidential information include not just highly technical information, such as chemical formulas, manufacturing processes, and computer algorithms, but also other information important to the business, such as recipes, databases, customer lists and preferences, pricing, business plans, profit margins, personnel information, maps and repair methods.
Whereas confidentiality agreements are about keeping secrets, NCAs impact careers. Through non-compete restrictions, companies protect themselves from perceived unfair competition by prohibiting employees from engaging in competitive conduct after employment ends. For example, employees can be prohibited from starting a competing business, going to work for a competitor or contacting customers of the former employer. Non-compete restrictions can be a stand-alone NCA or part of a broader contract, such as a general employment or consulting agreement.
As Florida is an employment-at-will state, unless the employee has an employment agreement dictating otherwise, an employee can be fired at any time for any non-discriminatory reason. Therefore, an employer can require an employee to sign an NCA as a condition for continued employment.
An employee’s “exit interview” is a good time for employers to remind departing employees about existing post-employment obligations such as confidentiality and non-compete restrictions. It also provides an employer with the opportunity to inquire where the employee will be going, which may provide insight as to the identity of potential competitors and the risk of disclosure.
Laws governing the enforceability of NCAs vary by state. In Florida, the laws are embodied in Florida Statute Section 542.335 (the “Valid Restraints of Trade or Commerce” statute), which mandates that non-compete clauses be in writing and the restrictions be “reasonable” in duration, geographic area and scope of business. The employer must also be able to demonstrate a “legitimate business interest” worthy of protection, which is a business asset that, if misappropriated, would provide an unfair competitive advantage over the employer. Examples include trade secrets or other valuable confidential business or professional information, substantial relationships with customers and specialized training of employees.
Non-compete provisions should be tailored to fit the business situation. A one-size-fits-all approach runs the risk of a court finding them overly broad or lacking a legitimate business interest and, therefore, unenforceable. During litigation, Florida courts can modify overly broad non-compete provisions to make the agreement reasonable. One could argue that it makes sense for the employer to make non-compete provisions very broad and rely on the court to narrow them at trial if necessary. This is not recommended for several reasons: (1) the expense of litigation, (2) the court’s revision can be unpredictable, and (3) the chilling effect it would have on applications from highly qualified and talented individuals for fear that it will stifle their careers. It makes sense, then, for the NCA or non-compete provision to be prepared by an attorney who is familiar with the employer’s business and has an understanding of the role that the prospective employee will play.
Employers should understand that the justification for an NCA is to protect the employer’s investment and intellectual property; on the other hand, a heavy-handed or excessive NCA can have the chilling effect mentioned above. Likewise, applicants and employees who encounter non-compete provisions should have an understanding of these competing interests (no pun intended) and have an attorney review any non-compete provisions before signing.
This article is public information and has been prepared solely for education or entertainment purposes to contribute to the understanding of U.S. intellectual property law. The article reflects only the personal views of the author, is not individualized legal advice and does not reflect the views of Saliwanchik, Lloyd & Eisenschenk, P.A.
Bio:
GLENN LADWIG, a Partner at Saliwanchik, Lloyd & Eisenschenk, concentrates his practice in patent prosecution and licensing. Mr. Ladwig is a Registered Patent Attorney, board certified as an expert in intellectual property law by The Florida Bar and is a Certified Licensing Professional. Saliwanchik, Lloyd & Eisenschenk is an intellectual property law firm that focuses on procurement and licensing of domestic and foreign patents and trademarks. It has a vibrant practice in the life sciences and engineering. The firm assists members of the local and worldwide innovation community in developing strategic IP plans and securing domestic and international patent and trademark protection.