Some background to get oriented: Non-compete agreements are restraints of trade. Non-compete cases fundamentally are not contract cases. Instead, they are restraint of trade cases. There are two lenses: The first lens is the restraint of trade lens. The second lens is the contract lens. They operate in that order. No exceptions. As such, the proper analysis of a non-compete agreement works as follows: Is the agreement an unreasonable – and therefore illegal – restraint of trade? The answer to that question hinges on the following: Is the restraint necessary to protect a legitimate business interest. Legitimate business interests generally take the for of confidential information, special customer relationships or an extraordinary investment in an employee’s training/education. That is the proper framework. Unfortunately, many litigants, lawyers and judges don’t understand this. Their assessment: “He signed a contract.” That’s wrong. Absent a legitimate business interest, the contract doesn’t matter. This post focuses on one of the most frequently litigated legitimate business interests: Confidential information. Let’s use bullet points. It’s easier that way:
- Confidential Information: Many folks think they can meet this burden simply by labeling something confidential. Example: Plaintiffs frequently put forward generic claims about their methods, strategies, processes, strategic plans. They introduce a few documents that they internally stamped confidential. And they expect this to carry the day. Unfortunately, it sometimes works in front of judges who do not understand this area of this area of law. Just because the plaintiff labels certain documents or information confidential doesn’t make it so. The real test: In order for confidential information to be a legitimate business interest it must be (A) valuable (B) not readily available to other competitors in the industry and (C) allow the defendant to engage in unfair competition.
- Burden of Proof: Under the law, the plaintiff bears the burden of pleading and proving that the claimed legitimate business interest actually exists. In practice, and in this context, that means the plaintiff must demonstrate that the information at issue is truly confidential, proprietary, valuable and unavailable to other industry competitors. This is intended to be a heavy burden. Again: Some judges get it, some judges don’t. Unless you luck out and draw a fantastic judge who has a deep understanding of non-compete law, you only beat this interest by aggressively attacking the plaintiff’s claims. In practice, this means the following: (A) Locking the plaintiff down on specific documents/information rather than general categories; (B) Proving lack of confidentiality/value on a document-by-document basis; (C) Cross examination and impeachment. Pro-tip: One of the best sources of impeachment evidence will comes from other competitors in the industry who have the same exact information. This means you need third party discovery.
- Proving How: Even if the plaintiff can establish that they have valuable, confidential information that is unique within the industry, they still bear an additional burden: Under Florida law, the plaintiff must demonstrate how the defendant could use that information to engage in unfair competition or to cause them harm. I’m not blowing smoke. That comes out of a seminal 4th DCA case. This is particularly useful in cases where there may be some competitive overlap between the plaintiff and the defendant’s new venture, but they’re not 100% competitors.
Pollard PLLC is a litigation boutique based in Fort Lauderdale, Florida and focused on competition law. The firm and its attorneys have experience litigating and arbitrating complex non-compete, trade secret, trademark, and other competition claims. For more information, please call their office at 954-332-2380.