The Florida Legislature's 1990 amendment to Section 542.33, Florida Statutes, has dramatically changed the landscape of litigation involving covenants not to compete. However, the statutory amendment has been inconsistently interpreted by the District Courts. The decisions of some courts have reflected a marked weakening of the employers' ability to enforce noncompetition agreements in the 1990's, while other courts have been unwilling to alter the almost unbridled power to restrict competition given to employers prior to the statutory amendment. This article will address the issues affecting enforcement of noncompete agreements as they apply to employees, independent contractors, and agents, and the current conflicts existing between the District Courts of Appeal.

The New Environment Surrounding Enforcement
As the 1980's came to a close, Florida courts had become some of the most rigorous guardians of an employer's right to enforce a covenant not to compete. In Capraro v. Lanier Business Products, Inc., 466 So.2d 212 (Fla. 1985), the Florida Supreme Court held that where a covenant not to compete is violated, irreparable harm will be presumed. Furthermore, many appellate decisions had construed the pre-1990 version of Section 542.33 to limit a court's discretion in deciding whether to enforce a noncompete solely to an assessment of the reasonableness of the covenant's duration and geographic limitations.

Justice Ben Overton, perceiving an unjustified tilt of the scales of justice toward employers and away from employees' right to pursue a chosen trade or profession, in a dissenting opinion in Capraro, issued a call to the Legislature to amend 542.33 governing noncompetition agreements, and restore equitable powers traditionally available to trial courts. Reemphasizing his prior dissent in Keller v. Twenty-Four Collection, 419 So.2d 1048 (Fla. 1982), he reasoned that the majority's holding would allow employers to enforce unreasonable covenants against employees, and would allow "unjust results." The Justice stated: we should never, by our laws or court determination, totally restrict an individual from earning a living in his or her chosen calling, particularly when the individual is an employee not used in a management capacity, except when absolutely necessary to prevent irreparable damage.

Justice Overton's dissents, and later appellate court decisions rigidly enforcing covenants not to compete, precipitated the Florida Legislature's 1990 amendment to 542.33. The legislative history indicates that the purpose of the 1990 amendment was to overturn the majority's holding in Capraro. Specifically, the legislature eliminated the presumption of irreparable harm, and expanded the scope of judicial analysis of reasonableness when enforcing covenants. Without changing any of the existing language, the Florida Legislature added, inter alia, the following, to 542.33(2)(a): However, the court shall not enter an injunction contrary to the public health, safety, or welfare or in any case where the injunction enforces an unreasonable covenant not to compete or where there is no showing of irreparable injury. However, use of specific trade secrets, customer lists, or direct solicitation of existing customers shall be presumed to be an irreparable injury and may be specifically enjoined.

As a result of this amendment, there are now at least three new issues to be addressed by trial courts presented with noncompete agreements: (1) what factors should be considered in determining the reasonableness of the covenant; (2) what must the employer show to establish irreparable harm; and (3) when is enforcement contrary to the public health, safety, and welfare.

Overall Reasonableness as a Defense to Enforcement
In the first significant appellate opinion to address noncompete agreements following the amendment, the Second District Court of Appeal, previously an ardent enforcer of restrictive employment covenants, adopted Justice Overton's rationale in interpreting the new reasonableness standard. In Hapney v. Central Garage, Inc., 579 So.2d 127 (Fla. 2nd DCA 1991), the Second District held that courts should apply traditional equitable principles to avoid "unfair and unjust results." In arriving at its holding, the court highlighted Justice Overton's dissent and the Senate staff analysis of the amendments, which states that the courts should examine the covenant to determine if it is "burdensome."

In Hapney, the former employer sought an injunction to enforce a covenant not to compete against a mechanic who went to work for a competitor. The trial court entered a temporary injunction in favor of the employer. Although reversing the injunction for other reasons, the Second District emphasized that the analysis of reasonableness now goes beyond time and geographic limitations, and the balancing test that previously had been applied only to these factors now applied more generally to the covenant as a whole.

In a subsequent case, the Fifth District Court of Appeals agreed that courts must assess the overall reasonableness, not just the reasonableness of the time and area restrictions, in deciding whether a covenant not to compete should be enforced. In Jewett Orthopaedic Clinic, P.A. v. White, 629 So.2d 922 (Fla. 5th DCA 1993), the employee was an orthopaedic surgeon under an employment agreement with a clinic. After submitting his resignation, he sought a declaratory judgment determining the enforceability of his covenant not to compete. On summary judgment, the trial court ruled in the employee's favor. In reversing, the appeals court stated the lower court must balance "the employer's interest in preventing competition against the oppressive effect of the covenant on the employee."

The Third District Court of Appeal, however, has indicated that, at least when circumstances exist to invoke the statutory presumption of irreparable injury, the 1990 amendment has not broadened the discretion that courts may exercise in assessing the reasonableness of covenants not to compete. In Sun Elastic Corp. v. O.B. Industries, 603 So.2d 516 (Fla. 3d DCA 1992), the Court concluded that in light of direct solicitation of the former employer's customers by the former employee, from which irreparable injury was presumed, it was not necessary to consider the direct holding in Hapney. Nonetheless, the Court held that since the presumption of irreparable injury applied, the pre-1990 line of cases requiring courts to enjoin the violation of noncompete agreements which are reasonable in duration and geographic scope "remain directly applicable and controlling."

Recently, the Third District Court of Appeal indicated that where circumstances invoking the presumption of irreparable injury are not shown, a court may exercise broader discretion in analyzing the reasonableness of a noncompete agreement. In Lovell Farms, Inc. v. Levy, 19 Fla. L.W. D364 (Fla. 3rd DCA Feb. 15, 1994), the Court stated in those instances the trial court "must weigh the public interest, the potential effects on the employee, and the legitimate business interests of the employer."

Irreparable Harm—How High a Hurdle
The growing body of case law following the 1990 amendment has given rise to even sharper disagreements between the districts in other areas. Probably the thorniest problem facing a trial court hearing a dispute over a noncompete agreement under the 1990 amendment is deciding whether the employer has established irreparable harm. Before June 1990, irreparable harm was presumed simply upon a showing of an executed agreement containing a covenant not to compete, and any evidence of a breach of the agreement. Following the 1990 amendment, however, irreparable harm will only be presumed where the employer pleads and proves "the use of trade secrets, customer lists or direct solicitation of existing customers."

The new statutory language leaves unanswered the question whether an employer, if it cannot invoke the presumption by demonstrating employee conduct infringing on one of these interests, still can prove that it has suffered irreparable harm in other ways. The District Courts of Appeal have sharply disagreed on this issue.

The Second District in Hapney viewed the 1990 amendment as "sweeping" and as imposing a "strictly curtailed" presumption of irreparable injury. The Court seemed to equate the factors required to show irreparable injury with the circumstances the employer needed to establish a "legitimate protectible interest," which it said was required to sustain the covenant in the first instance. In addition to the statutory factors of use of trade secrets, customer lists or solicitation of existing customers, the Court indicated that the employer might also show irreparable injury through an investment in "extraordinary training" afforded to the former employee which would be lost if the employee were allowed to compete. The Court, however, expressed a narrow view of the type of training or education which would prove irreparable injury.

The Fourth District likewise appears to follow a narrow view of "irreparable harm" in noncompete cases. In AGS Computer Services, Inc. v. Rodriguez, 592 So.2d 801 (Fla. 4th DCA 1992), the Court sweepingly announced that employers seeking to enforce non-compete agreements "must plead and prove irreparable injury." Underlining the amended statute's departure from the pre-existing state of the law, the Court, citing Hapney, ruled that proof of a breach of a valid covenant not to compete will no longer suffice to invoke a presumption of irreparable injury.

The Third District has also followed a narrow view of circumstances showing irreparable harm. In Lovell Farms, supra, the employer sought an injunction to prevent its former employee from working for a competing horticultural nursery because the employee was privy to its growing techniques. The employer claimed these techniques were trade secrets within the meaning of the statute. The court observed that: Because the Legislature has narrowed the grounds for enforceability of non-compete covenants, the exception for specific trade secrets cannot be allowed to consume the new rule. Employers now alleging violations of specific trade secrets must be held to their burden to plead and prove the "use" of "specific trade secrets."

The Fifth District Court of Appeal, however, has taken the most divergent view of the effect of the 1990 amendment on the requirement of irreparable injury. That court in Jewett, supra, viewed the 1990 amendment as imposing only a minor or technical change in the employer's burden of proof in noncompete cases. Although the Court acknowledged that employers must offer "some evidence" of injury, the Court stated that "[t]he 1990 amendment creates no new proof problems on the issue of irreparableness" since non-compete agreements "by their nature lend themselves principally to enforcement by injunction because of the difficulty of arriving at a dollar figure for the actual damage done as a result of the breach." In language that contrasts starkly with the Fourth District's holding in AGS Computer Services, supra, the Court concluded that irreparable injury is "broad enough to include injury caused by competition in violation of a reasonable noncompete covenant."

The Jewett court expressly disagreed with Hapney's limitation of the circumstances constituting irreparable injury to certain specific "legitimate protectible interests." If followed by other courts, the reasoning in Jewett in practice would eviscerate the 1990 amendment. The Jewett court itself had explained that the rationale for the Capraro presumption was that delay inherent in the need to prove harm "would deprive the employer of his most effective remedy." But by finding that noncompetes inherently "lend themselves" to enforcement by injunction, Jewett, in effect, resurrected the automatic Capraro presumption of irreparable injury which the legislature rejected in 1990.

May Competition Be Eliminated or Merely Restrained?
As the seminal case interpreting Florida Statutes 542.33(2)(a)(1990), Hapney must be cited in any lawsuit where the enforceability of a covenant not to compete is at issue. Perhaps the most controversial aspect of Hapney, however, is not its interpretation of the 1990 amendment, but is the court's interpretation of pre-1990 Florida noncompete law.

In analyzing this law, the court first concluded that agreements which seek to eliminate competition per se violate public policy and are void. Although the court acknowledged that the requirement was not expressly contained in the pre-1990 noncompete statute, the court nevertheless concluded that, in order for a noncompetition agreement to be valid, the employer must have a legitimate business interest in the enforcement of the noncompete agreement aside from merely precluding competition. The Court found support for this threshhold requirement in various pre-1990 decisions by Florida courts and in case law from other states. The Court concluded: We have no reason to doubt, and so determine, that the general rule stated above [that covenants intended simply to eliminate competition per se are invalid] is an integral part of our law, which is implied in section 542.33(2)(a), Florida Statutes (1989).

The Court found only three interests of employers of sufficient importance to validate a noncompete: "(1) trade secrets and confidential business lists, records and information, (2) customer goodwill, and (3) to a limited degree, extraordinary or specialized training being provided by the employer. The Court emphasized that it was the employer's burden to plead and prove the existence of the underlying protectible interest.

In Chandra v. Gadodia, 610 So.2d 15 (Fla. 5th DCA 1992), the Fifth District rejected Hapney's conclusion that the pre-1990 version of Section 542.33 implicitly had required proof of a legitimate business interest. The Chandra court noted that the issue of the validity of the noncompete was raised before the Fourth District in Capraro, and was before the Florida Supreme Court when they affirmed the lower court. Thus, the Court concluded that the pre-1990 statute must not contain an implied requirement that an employer plead and prove a protectible business interest. In Jewett, supra, the Fifth District held that the requirement of a protectible interest also could not be found or implied in the 1990 Amendment.

No other Florida courts have ruled directly on whether the validity of noncompete agreements hinges on finding a protectible business interest. As with other issues discussed in this article, the Second and Fifth Districts have presented the most divergent views on this issue. But the notion that "legitimate business interests" ought to play some role in the analysis appears to be catching on.

The Public Health, Safety, and Welfare
Another emerging question raising conflict among the courts is the extent to which the public health, safety and welfare should affect the enforcement of covenants not to compete. This issue assumes particular importance in light of the recent dramatic changes in the health care field and the instability of employment relations involving health care professionals.

In a few instances, however, courts have expressed reluctance to enforce noncompetition agreements against medical professionals on public policy grounds. For example, in Lloyd Damsey, M.D., P.A. v. Mankowitz, 339 So.2d 282 (Fla. 3d DCA 1976), cert. denied, 345 So.2d 421 (1977), the Third District Court of Appeal affirmed the denial of an injunction against a surgeon practicing in the Florida Keys because there was evidence of a compelling need for the surgeon's services in the area, and "enforcement of the covenant would jeopardize the public health of the community."

After the enactment of 1990 amendment, the Fifth District Court of Appeal in Jewett concluded that the public health, safety, and welfare addition to the statute was simply a codification of the prior law, which had generally enforced covenants not to compete involving physicians. However, a recent Third District Court of Appeal's opinion took a very narrow view of contracts which interfere with a patient's right to be treated by the doctor of his or her choice. In Humana Medical Plan, Inc. v. Jacobson, 614 So.2d 520 (Fla. 3rd DCA 1992), the court considered the enforceability of a liquidated damages clause which required a physician to pay $700 for each member of the employer's HMO who switched to some other medical services plan. After the doctor's contract with Humana ended, the doctor became affiliated with another HMO and many of his patients left Humana and enrolled in the new HMO. The Court concluded that the liquidated damages clause violated public policy by interfering with the doctor-patient relationship. The court stated: The doctor/patient relationship is an important and special relationship, vital to the provision of health care. . . . Consequently an individual's choice of doctor is of great importance.

While noting that it was not presented with, and was not deciding the question of a noncompete agreement's enforceability by injunction, physicians and other health care providers should find this reasoning to be persuasive that enforcement of a covenant not to compete in this area is contrary to the public health, safety, and welfare.

The Future of Enforcement
To bring some consistency in this area of the law and to provide needed guidance to trial courts, attorneys and their clients, either the Florida Supreme Court or the Legislature must act to resolve the current conflicts. A bill proposed during the 1993 legislative session attempted to resolve at least some of the disharmony. However, despite its attempt to clarify the current statute, the bill, which did not pass, would have left the questions raised by this article unanswered.

Currently, a Florida Bar committee is reviewing the state of the law and intends to have a proposed bill ready for submission in the next legislative session. The resolution of these conflicts either by the Florida Supreme Court or further legislative amendment will determine whether the pendulum continues swinging away from enforcement of covenants not to compete or employers are afforded a renewed mandate to curtail competition by their former employees.

Reprinted with Permission, Florida Bar Journal, copyright 1994