Covenants have the potential to hurt the economy.
By James Poindexter. Young Lawyers Section Board of Governors
Most everyone reading this article has experienced it. After unboxing your new Apple iPhone, you begin the arduous task of trying to restore your contacts, calendars, applications and emails.
A few dialogue boxes appear asking you to accept “this” and agree to “that” and before you know it, you are up and running.
I imagine there are only a few Apple users who have taken the time to read each of those agreements before giving their consent. I imagine there are even fewer who have provided Apple with a redlined version of the agreement.
For the most part, consumers understand that they must accept whatever terms are offered or they will not be able to use their product.
For many employees in Florida, signing new hire documents has become a routine part of the hiring process. After getting a new job, many employees are handed large packets of boilerplate contract agreements, many of which the employee cannot understand and has no means of negotiating.
For many employees, one of the documents that must be signed and returned is a noncompete agreement or other contract containing restrictive covenants. Considering the importance of preserving competition in our economy, the Florida Legislature has regulated the usage and enforceability of restrictive covenants in the employment context.
Unfortunately, noncompete litigation is commonly a “David and Goliath” situation. Many employers pursue their former employees through emergency injunctions that few employees have the resources to defend against.
Often, trade secrets are not truly secrets, confidential information is not kept confidential, business relationships are not truly substantial or training is not specialized.
Even so, many employees are met with insurmountable cost barriers that prevent them from asserting their defense, and as a result, are enjoined from fairly competing in the only career they know.
Beyond the cost of litigating such agreements and the financial burden the litigation places on our courts, there is an economic toll that is dealt by the overuse of restrictive covenants in employment agreements. It should be considered by conscientious employers before choosing to enforce such agreements.
In March 2016, the U.S. Department of the Treasury published a report finding that 37 percent of employees reported signing a noncompete agreement with an employer or former employer while only 24 percent reported possessing trade secrets.
Faced with a noncompete, some employees choose not to leave their employer while others are forced to start over in a new career or sit out of the labor force for the duration of the agreement’s term.
These anti-competitive outcomes lead to higher unemployment, lower wages and less innovation.
Balancing the protection of trade secrets and confidential business information with the economic need for healthy competition in the marketplace is not an easy task, and the Legislature has not provided much guidance on how to resolve such disputes.
The statute provides for the enforcement of such agreements if they are “reasonably necessary to protect the established legitimate business interest. . .” sec. 542.335, Fla. Stat.
Determining what constitutes a “legitimate business interest” and what is “reasonable” has been left to the judiciary to decide at the emergency injunctive stage of the litigation.
The Legislature has an interest in preserving its citizens’ ability to freely move between businesses. Doing so leads to more competition, lower unemployment, higher wages, innovation and a stronger economy.
While unfair competition should be prohibited through such contracts, the overuse of restrictive covenants is holding back Florida’s economy.
James Poindexter is an associate with Delegal Law Offices practicing labor and employment law.