In today’s world, it seems like nearly every company in the United States has adopted a strategy of using aggressive non-compete agreements, regardless of whether those agreements are necessary, reasonable or enforceable. Unfortunately, many people do not realize that non-compete agreements are frequently either unenforceable or subject to significant revision by a court. Instead, many people simply assume that because there is a non-compete agreement in place, that agreement enforceable. In many instances, that is simply not the case. Granted, fighting a non-compete agreement in court can be expensive. But in some instances, particularly where there is a lucrative new opportunity and the facts are on your side, it makes sense to fight back.
I’ll be blunt: Many non-compete agreements are nonsense and absolutely unenforceable. But often that does not matter. The employer does not actually have to litigate the case. They just send a cease and desist letter and get lots of mileage out of that alone. I have seen numerous situations where the employee backed down because of a cease and desist letter, not because the non-compete agreement was valid, but simply because they did not have the means to get involved in a lengthy, expensive non-compete case. Sometimes, however, it makes sense to go to court. When non-compete cases are litigated, (allegedly) confidential information and trade secrets usually play a central role in the dispute.
In Florida, non-compete agreements are governed by Florida Statute 542.335. Under this statute, non-compete agreements can only be used to protect a legitimate business interest. Although the statute is not exhaustive, it does spell out a number of such interests. These include trade secrets, confidential information, relationships with customers and extraordinary or specialized training. Let’s focus on trade secrets and confidential information.
Non-Compete Agreements and Trade Secrets
Although I frequently criticize the overuse and misuse of non-compete agreements, I believe that there are certain situations in which the use of non-compete agreements may be fair and reasonable. For example, when actual trade secrets are involved, it is reasonable to have employees sign a non-compete agreement. If a team of employees are working on a new software program, or working with the formula for Coke or developing a secret new solar power technology. In these instances, I can accept that a non-compete agreement might be reasonable.
Here is a hypothetical: John Smith worked at the Mega Things Corporation in Fort Lauderdale, Florida and was deeply involved in developing new, revolutionary solar power technology. Mega Things spent millions of dollars on developing this technology, including paying John and his team of engineers hundreds of thousands of dollars each. The project was top secret. Everything was marked confidential. Nothing was ever made public. One day, John gets a call from Way Bigger Corporation down in Miami. As it turns out, Way Bigger is currently working on solar technology, they know Mega Things is developing solar technology, they know Joe is working on that solar technology and they want John to come work for them. They will pay him tons of money to jump ship, come on down to Way Bigger and help them develop their solar technology. Let’s assume that John does not take any files with him. He does not take any documents. He does not email himself the blueprints or download them to a flashdrive. Instead, he just leaves and heads down to Miami to work for Way Bigger.
John had a non-compete agreement. Mega Things, a Delaware corporation, files a lawsuit against John in the United States District Court for the Southern District of Florida. Should the court enforce the non-compete agreement? A situation like this raises the issue of inevitable disclosure. In this context, Mega Things would argue that the non-compete agreement should be upheld and John should be enjoined from working for Way Bigger because John had access to Mega Things’ trade secrets and will inevitably disclose those secrets in his new job at Way Bigger. Under Florida law, inevitable disclosure is something of a grey area. The law is unsettled. But in a situation like this, I think it would be perfectly reasonable for the court to enforce the non-compete agreement based on the interest of trade secrets and enjoin John from working for Way Bigger.
But remember, we are dealing with actual trade secrets here. Let’s move on to confidential information.
Not a Trade Secret But It Is “Super Confidential and Extremely Valuable”
In many non-compete cases, it is clear that trade secrets are not at issue. So, the lawyers for the plaintiff have to settle for making allegations about confidential information. If an attorney regularly practices in this area, he or she will soon realize that “confidential information” in non-compete cases is often nothing but hot air. Pleadings often refer to “confidential and proprietary business information”, “strategic planning documents”, “best practices manuals”, “customer proposals” and the like. In many instances, when the details emerge, it becomes clear that the allegedly confidential information was either not confidential or not valuable.
Let’s use an example from a real case that was litigated in Miami, in the Southern District of Florida: Southern Wine and Spirits is a major wine and liquor distributor based in South Florida. A man named Ted (great guy by the way) spent nearly two decades running their California operation. Ted made the owners of Southern hundreds of millions of dollars. He was great at his job. His job was basically to convince suppliers – makers of wine and spirits – to sign on with Southern on favorable terms for Southern. That’s right. Ted went out, made a ton of contacts in the industry, formed relationships, and then convinced companies like Diageo and Bacardi to supply Southern with product on good terms. We are talking about wine and relationships. We are not talking about the formula for Coke or some secret new solar power technology.
After reaching an impasse with the owners of Southern, Ted left the company and went to work for a competitor, called Young’s Market Company. Southern sued Ted for breach of his non-compete agreement. The core of Southern’s claim: Ted had access to confidential information, including information on the company’s strategic planning. And the pièce de résistance: Ted knew about a top secret proposal for one of the company’s potential suppliers. This is pretty standard practice in non-compete cases. Big companies play this game all the time. They make all sorts of vague allegations about confidential information, proprietary business information, confidential strategic planning information and the like. In defending against these types of allegations, the strategy is pretty straightforward: Gather evidence to show that the allegedly confidential information is not, in fact, confidential.
This means:
- Disclosure – Find instances where the company has disclosed the same information to other players in the industry without a non-disclosure agreement.
- Public – Find instances where the information is publicly availabe
- Admissions – Find instances where the company has admitted that the information is not confidential (possibly in other cases)
- Economic – Attack the value of the information and show that it is worthless to a competition
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.
