When two or more parties sign a business purchase agreement, the contract might contain restrictive covenants, such as a non-compete clause. Is it possible to assign a non-compete clause in a Florida business sale? Keep reading to find out.
Florida Non-Compete Law – The Fundamentals
When buying a business in Florida, the buyer may demand the seller to sign a non-compete agreement. In a non-compete agreement, the seller agrees not to compete with the buyer for a specific period within a limited geographical scope.
Florida Statutes §542.335 provides that “enforcement of contracts that restrict or prohibit competition during or after the term of restrictive covenants, so long as such contracts are reasonable in time, area, and line of business, is not prohibited.”
Statutory requirements expressly state that “in any action concerning enforcement of a restrictive covenant:
- A court shall not enforce a restrictive covenant unless it is set forth in a writing signed by the person against whom enforcement is sought
- The person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant”
Are Non-Competes Assignable in Florida? – The Verdict
To determine whether a non-compete clause is assignable, Florida courts will assess whether the agreement has language expressly affirming a third-party’s rights to enforce the non-compete agreement.
Under Florida Statutes §542.335(1)(f), “the court shall not refuse enforcement of a restrictive covenant on the ground that the person seeking enforcement is a third-party beneficiary of such contract or is an assignee or successor to a party to such contract provided:
- In the case of a third-party beneficiary, the restrictive covenant expressly identified the person as a third-party beneficiary of the contract and expressly stated that the restrictive covenant was intended for the benefit of such person
- In the case of an assignee or successor, the restrictive covenant expressly authorized enforcement by a party’s assignee or successor”
Are Employees Affected by the Assignment of a Florida Non-Compete Agreement? – A Case Study
Depending on how a non-compete agreement is assigned to the new owner in a business purchase transaction, it may affect the employees who were part of the business prior to the change in ownership.
Let’s say an employee joined company A and signed an agreement containing a non-compete clause. However, the clause did not have language expressly authorizing the employer to assign the agreement.
After working for company A for five years, the employee decided to leave after discovering the company would be purchased by a large multinational corporation. Upon resigning from his position, the employee immediately signed with a competitor.
In the event the employer decides to sue this employee for a violation of a non-compete clause, the court may not enforce it. Under Florida law, any restrictive covenants are assignable without the parties’ consent only if that was the agreement’s original intention.
If the employer claims parties have originally intended the agreement to be assignable, the employee may claim that the agreement lacks a proper assignment clause. Hence, he did not intend the non-compete would be assignable to the third party that acquired company A.
As it is plain to see, the language used in the agreement will determine whether a non-compete clause is assignable.