The role of Non-Compete Agreements in Florida and Abroad

Chase Tavernier – In recent years, there has been a fierce debate revolving around the use and justification of non-compete agreements in employer-employee relationships. The two sides of this debate can be witnessed by recognizing how various entities choose to define what a non-compete agreement is. Some regard non-compete agreements as stifling “wage growth, career advancement, innovation, and business creation” by restricting a workers ability to compete with a previous employer, while others regard it as a way to “protect a business’s investment in [its] employees and keep crucial information out of the hands of its competitors.” Before considering Florida’s law and its role in the enforcement of such agreements, it is important to first evaluate the underlying reasoning behind each proffered definition.

For those in favor of non-compete agreements, such agreements are regarded as a necessity in order to protect trade secrets, reduce labor turnover, impose higher costs on competing firms seeking to poach employees, and to increase employer leverage in future negotiations with employees. Furthermore, in utilizing non-compete agreements, employers also have more inclination to provide better training to such employees, as it is only then that they can protect unique and proprietary training which is often expensive and time-consuming. The importance of these justifications is emphasized as these agreements are a way to preserve a “business’s competitive edge” by restricting high level executives from taking “strategic plans, scientific know-how, and customer and client knowledge” with them to direct competitors.

However, the anti-non-compete agreement side proffers strong objections based on both the economic effects and policy implications of such agreements.  The argument for this side is that non-compete agreements, in benefiting employers, only do so at the “expense of workers and the broader economy.” These agreements reduce the already minimal bargaining power most employees have, and the restrictions in some cases are so severe that it causes employees to forego entirely any further occupation in the field they are in for the period of time specified by the agreement. This results in a foregoing of any accumulated training and experience in that field—a cost which constitutes an utter waste and makes an employee less attractive to future employers.  It is further recognized that these clauses are specifically designed to reduce job churn which is a major concern for the economy as “[j]ob churn helps to raise labor productivity” by allowing employees to pursue better matches in regards to their wants and desires in an employer.

In addressing the veracity of the justifications for either side, the manner in which these agreements are used in practice is quite telling. Research suggests that about “18% of all workers, or nearly 30 million people,” are currently governed by a non-compete agreement. This may not seem that significant, but of this 30 million “only 24% of workers report that they possess trade secrets” in their employment—a major reasoning behind the need for such agreements. Statistics also show that of the workers under such agreements 14% make less than $40,000, and 15% do not have a four-year college degree. In providing all these statistics, the Office of Economic Policy under the U.S. Department of the Treasury found that job “mobility fell 8% after these agreements were made enforceable,” and ultimatley concludes that their enforcement is “associated with both lower wage growth and lower initial wages” for employees.

To understand the reasoning behind the Treasury Departments interpretation of these statistics, one must consider examples of how these agreements are being applied in modern employment opportunities. In 2011, The Washington Post published an article that reported that “80% of fast-food workers are constricted by no-poaching clauses.” The term “no-poaching clause” is interchangeable with the term non-compete clause, and the former term has the same effect and force as the latter. One example of this is that Jimmy Johns had a two-year clause preventing employees from working for any business that derives more than 10% of its revenue from selling sandwiches or the like within three miles of any Jimmy Johns location.

With the proper foundation supplied, we now must view the Florida non-compete statute, §542.335, governing enforceability of such agreements. This statute, ironically using the word reasonable or a connotation of it 17 times, was held by the New York Court of Appeals  in 2015 to be unenforceable because it was against New York’s public policy. The court’s reasoning specifically found that Florida’s statute was unbalanced and excessively pro-employer focusing specifically on two provisions within the statute: 1) the court recognized that “Florida law explicitly prohibits courts from considering the harm or hardship to the former employee” and 2) Florida law requires courts to “construe restrictive covenants in favor of protecting the employer’s interests,” such that they may not interpret any contracts in a manner that would require construction of a restrictive covenant “narrowly or against the restraint or drafter.”

In reviewing the Florida statute as written, it is clear that it only purports to further employer interests at the expense of both employees and the broader economy. However, this may not be the case for long. Recently two U.S. Senators reintroduced the “Workforce Mobility Act,” which is legislation focused specifically on empowering workers and entrepreneurs to apply “their talents where their skills are in greatest demand.” This legislation recognizes non-compete agreements as “economic and innovation killers,” and expresses the goal to eradicate them in nearly all contexts in order to free low-paid employees, and generate more competition by allowing such employees to change jobs and earn higher wages. Despite the apparent goodwill behind this legislation, which has been unsuccessful in the past, it has its critics as one scholar recognizes it as an overbroad “buckshot” approach that will restrict the legitimate use of such agreements that “have been around for hundreds of years.” As a result of these contrasting views, the future enforcement of these agreements is uncertain; however, one might very well soon see a massive change to the legal landscape of employer-employee relationships.

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