Florida Statute s. 542.335 is a statute that deals with restrictive covenants in contracts that impose a restraint on trade. It is an important statute to determine invalid restraints on trade that unreasonably or unfairly prevent competition. Any invalid restraint on trade is unenforceable. Restrictive covenants–or covenants in agreements that restrict you or prevent you from doing something–may unsuspectingly be included in contracts or the impact of the restrictive covenant may not be appreciated at the onset.
A party seeking to enforce a restrictive covenant in a contract has the additional burden of PROVING the validity and reasonableness of the restrictive covenant:
Under section 542.335, three requirements must be satisfied for a restrictive covenant to be enforceable: (1) the restrictive covenant must be “set forth in a writing signed by the person against whom enforcement is sought”; (2) the party seeking to enforce the restrictive covenant “shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant”; and (3) the party seeking to enforce the restrictive covenant “shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.”
“Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.” However, “[s]ection 542.335 commands courts to modify, or blue pencil, a non-competition agreement that is ‘overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest,’ instructing courts to ‘grant only the relief reasonably necessary to protect such interest.’ ”
Rauch, Weaver, Norfleet, Kurtz, & Co, Inc. v. AJP Pine Island Warehouses, Inc., 46 Fla.L.Weekly D591a (Fla. 4th DCA 2021) (internal citations omitted).
For instance, in a non-construction case, a real estate broker entered into a six-month exclusive listing agreement to sell commercial property. The broker reached out to a prospective buyer (a neighbor of the seller) but asked the buyer to enter into a confidentiality agreement. The confidentiality agreement provided that the prospective buyer would not disclose financial information to any other person and would not negotiate with the owner (seller) of the property, i.e., a restrictive covenant. The prospective buyer made an offer but the seller rejected the offer. Subsequently, the exclusive listing agreement expired and the seller engaged a new broker. The new broker reached out to the same prospective buyer and, after further negotiation, the prospective buyer made another offer that the seller accepted.
When the original broker learned of the transaction, it sued the buyer for breaching the confidentiality agreement. The buyer argued that section 542.335 applied to render the confidentiality agreement unenforceable. The trial court and appellate court agreed that section 542.335 dealing with restraints on trade applied to govern the enforceability of the restrictive covenant – “The threshold requirements of section 542.335 [referenced above] are essential elements in any cause of action [that a party must plead and prove] concerning enforcement of a restrictive covenant.” Rauch, Weaver, Norfleet, Kurtz, & Co, Inc., supra.
Here, the confidentiality agreement was not signed, which was problem number one. Other problems included that its restrictive covenant was indefinite in time. While the court could modify this, any reasonable length of time would be the original broker’s six month listing agreement and the buyer did not violate the confidentiality agreement during this period. Putting all of this aside, when dealing with a restrictive covenant, it is imperative to consider the requirements of s. 542.335 and the additional burdens a party must plead and prove to enforce a restrictive covenant.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.