Florida: Reasonableness Matters.
In Florida, restrictive covenants are not prohibited, so long as they are reasonable in time, area, and line of business.[1] In the context of the sale of a business or professional practice, Florida courts generally presume reasonable if the restriction is less than three years in duration and unreasonable if more than seven years in duration. Additionally, the person seeking to enforce a restrictive covenant must: (i) show the existence of a legitimate business interest justifying the restriction, such as trade secrets, other valuable confidential business or professional information, substantial relationships with customers/patients/clients, goodwill, or special training; and (ii) prove that the restraint is reasonably necessary to protect the legitimate business interest.
Although the current statute only applies to non-competes entered into after July 1, 1996, cases decided under the old statutes give us some ideas of what counts as reasonable. In Rinker Materials Corp. v. Holloway Materials Corp., the parties were two competitors in the concrete products business who found it increasingly difficult to do business in the same area.[2] Ultimately, Holloway sold the business to Rinker and agreed not to compete in the same line of business within a radius of 25 miles for a period of ten years.[3] Noting that the non-compete was ancillary to the sale of the business and goodwill was considered in the purchase price, the court enforced the agreement.
Still, Florida courts do not always find non-competes ancillary to the sale of a business enforceable, unless reasonable. In Kaye v. Orkin Exterminating Co., Kaye was an officer of Orkin Company when it was sold to Kinro Corporation (which subsequently changed its name to Orkin Exterminating Company, Inc.) in 1964.[4] At the time of the sale, Kaye entered into a consultant agreement with the purchaser company, which contained a non-compete clause prohibiting Kaye from engaging in any competitive activities for 20 years.[5] The court noted several interesting facts: the non-compete was executed in Atlanta but Kaye had subsequently moved to Florida; he did not attempt to engage in any competitive activity after the sale; he was not the founder of the seller business; there was a high attrition rate of customers in the business; and Kaye had no access to the company’s trade secrets, if any.[6] Accordingly, the court found that the 20-year non-compete, on which there remained 13 more years, was unreasonable and, thus, unenforceable.[7]
This post was part of a multi-part series on covenant not to compete in the context of buying or selling a business. You can find the other posts by searching our blogs at www.mcbrideattorneys.com. In our next post, we will discuss non-competes under New York law.
This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. This article should not be treated as legal advice to any person or entity.
Steps have been taken to verify the contents of this article prior to publication. However, readers should not, and may not, rely on this article. Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.
[1] See generally Fla. Stat. § 542.335. Unless otherwise noted, all references to the statute refer to this citation.
[2] See generally Rinker Materials Corp. v. Holloway Materials Corp., 167 So.2d 875 (Fla. 2nd Dist. Ct. App. 1964).
[3] Id.
[4] See generally Kaye v. Orkin Exterminating Co., 472 F.2d 1213 (5th Cir. 1973).
[5] Id. at 1214.
[6] Id. at 1215.
[7] Id.