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Prior Breach No Defense to Enforcement of Non-Compete Agreement, Rules Third DCA

A common defense that employees raise to the enforcement of a non-compete covenant is that the employer committed a prior breach of the employment agreement. There has been little case law in Florida exploring the nature of this defense. But a recent case by the Third District Court of Appeals, Reliance Wholesale, Inc. v. Godfrey (Case No. 3D10-82, Fla. 3d DCA, December 22, 2010) offers employers valuable guidance on this issue.

Samantha Godfrey was a senior staff member at Reliance Wholesale, a pharmaceutical distributor. Godfrey attended trade shows for the company and established relationships with customers and potential customers. She signed a “Non-Compete, Non-Solicitation and Non-Disclosure Agreement” that, among other things, prohibited her from working for a competitor if she left her employment with Reliance. She also had access to a computer database that contained detailed information about the company's customers. In early 2008, Reliance deducted $58,000 from Godfrey's commissions because it believed it had overpaid her two years earlier. The company also charged her $10,500 for “bad debts.” Godfrey left Reliance after it instituted a new commission structure, and she went to work for Allied Medical Supply, one of Reliance's competitors. Reliance then sued Godfrey and Allied.

The trial court denied Reliance's motion for temporary injunction on the grounds that Reliance's “unilateral recovery of commissions allegedly overpaid to [Godfrey] two years earlier, presents a viable and unrebutted defense to [Reliance's] entitlement to enforcement of the non-compete agreement.”

The Third District Court of Appeals reversed on two grounds. First, there was evidence that the parties had actually settled their disagreements regarding Godfrey. Second, and more importantly, the court noted that under Florida law, the prior beach defense is limited to “dependent covenants.” Here, Godfrey's agreement demonstrated that the restrictive covenants were independent of any other provisions in the agreement:

The covenants set forth herein shall be construed as agreements independent of any other provision in any other agreement by, between, among, or affecting Reliance Medical Wholesale, Inc. and Employee, and the existence of any claim or cause of action of Employee against Reliance Medical Wholesale, Inc., whether predicated on this agreement or otherwise, shall not constitute a defense to the enforcement of this Agreement.

The court therefore held that Godfrey's prior beach defense failed as a matter of law, and that Reliance was entitled to an injunction.

For Florida employers, the Reliance Wholesale decision provides an important lesson in drafting non-compete and other restrictive covenants. Restrictive covenants should be contained in a stand-alone agreement, and should expressly state that the covenants are independent of any provision in any other agreement between the employee and the employer, and that an alleged breach by the employer of any other agreement shall not constitute a defense to the enforcement of the restrictive covenants. Careful drafting in this case meant the difference between victory and defeat.


The Florida Employer

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Michael W. Casey III, Kevin E. Vance, Mark J. Beutler, and Teresa M. Maestrelli practice labor and employment law, with a particular focus on labor and employment litigation, including Title VII, ADEA, ADA, Florida Civil Rights Act, and whistleblower claims, as well as non-compete litigation, in state and federal trial and appellate courts in Florida and throughout the United States. They also represent employers before the National Labor Relations Board (NLRB), the National Mediation Board (NMB), the U.S. Department of Labor, including the Wage and Hour Division and the Occupational Safety and Health Administration (OSHA), the Equal Employment Opportunity Commission (EEOC), and various state and local agencies, as well as in arbitrations, collective-bargaining negotiations and union representation elections. Hector A. Chichoni practices in the area of US and global immigration law. He chairs Duane Morris's Florida Immigration Practice. The editors of Chambers USA 2010 also selected Mr. Chichoni as a "Leader in the Immigration Field." He has represented a vast number of corporate and individual clients throughout his career ranging from premier US health care organizations, Fortune 100 and Fortune 500 companies, multinational corporations and universities to doctors, professors, researchers and students. His international experience includes handling matters relating to export controls and global corporate compliance and business transactions. He has represented clients in a wide variety of cases before the US Immigration Court.
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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.