Enforceability of Restrictive Covenants for Out-of-State Employees
Courts generally respect the parties’ agreement about which state’s law will govern a contract. However, in employment agreements involving restrictive covenants, courts may require that the chosen state has a relationship to the parties and that the laws of the foreign state do not violate the public policies of the forum state due to concerns about unequal bargaining power.
Florida’s statute governing covenants not to compete is generally considered more employer-friendly than that of many other states. The statute expressly provides that “courts shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking employment.” This language is used by employers across a wide array of industries to enforce restrictive covenants.
The mechanics of the Florida statute also favors employers. The “legitimate business interests” that receive protection can include trade secrets, valuable confidential business information, substantial relationships with existing customers, customer goodwill and even training received in connection with one’s employment. An employer seeking to enforce a restrictive covenant can establish a prima facie case by showing that any legitimate business interest may be affected. Once the employer establishes a prima facie case, the burden then shifts to the employee to prove that the restraint is overbroad in geographic or temporal scope, or otherwise unnecessary.
It should come as no surprise that employers with some relationship to Florida may be tempted to include a Florida choice-of-law provision in employment agreements for non-Florida employees. Accordingly, it follows that non-Florida courts may be skeptical of an employer who includes a Florida choice-of-law provision when the employer’s relationship with Florida is tenuous at best.
In Brown & Brown, Inc. v. Johnson, 25 N.Y.3d 364 (2015) the employee worked in New York as an underwriter and actuary for a New York subsidiary of a Florida parent company. She had an employment agreement with a two-year non-compete governed by Florida law. The Court of Appeals of New York, the state’s highest court, determined that “Florida’s nearly-exclusive focus on the employer’s interests, prohibition on narrowly construing restrictive covenants, and refusal to consider the harm to the employee” were in stark contrast to New York public policy, which favors strictly construing restrictive covenants so as to protect an employee’s ability to freely pursue career opportunities. The New York court declined to enforce the agreement’s choice-of-law provision because it found Florida law to be “offensive to a fundamental public policy of [New York].”
It is important that employers take note as those who use a Florida choice-of-law provision in agreements with out-of-state employees may face difficulty in enforcing those agreements. Many states share New York’s public policy disfavoring non-compete agreements. Brown is important because it is now unlikely that a New York court, or any state with similar restrictive covenant laws, will enforce a Florida choice-of-law provision when used in connection with a restrictive covenant. Employers currently using such provisions in employment agreements with their out-of-state employees should consider modifying those agreements so that the provision is consistent with the public policy of the state where the employee is located.
Rick Duarte is the owner of The Duarte Firm, P.A., where he focuses his practice on business law. He received his law degree from the Emory University School of Law and has been named a “Rising Star” in Business Litigation by Florida Super Lawyers for 2016 – 2018. Rick also serves as outside general counsel to emerging and medium-sized businesses, guiding clients through corporate governance, risk management issues, and strategic decisions where business and law intersect.