Are Non-Compete Provisions Enforceable if the Employer Hasn’t Paid the Employee due Compensation? It Depends on the Terms on the Contract

When an employer seeks to enforce its non-competition agreement against its former employee, one of the most common defenses raised by the employee is that the employer failed to compensate the employee under the terms of the contract.  The defense of non-payment is often enough to hamper the employer’s efforts to enforce its rights with a temporary injunction, which requires the employer to demonstrate its likelihood of success on the merits. So how can an employer get its temporary injunction now and fight the “non-payment” battle later?  It all starts with contract drafting: if the non-compete provision is expressly independent of the remaining terms and conditions, non-payment of employee compensation is no defense to its enforcement.  This Blog post analyzes a recent non-compete case, which is the latest Florida ruling to address the importance of drafting independent restrictive covenants.

In Richland Towers, Inc. v. Denton, 2014 WL 941952 (Fla. 2d DCA March 12, 2014) the court reviewed an order denying Richland Towers’ request for a temporary injunction to enforce restrictive covenants, when two of Richland’s former employees resigned and established a competing business.  Richland sued its former employees for breach of the non-compete provisions of the employment agreements, but the employees contended that the provisions were unenforceable because Richland failed to compensate them as required by the agreements.

Although the trial court found that Richland Towers failed to pay its employees as required, the non-compete provision was still enforceable because the provision was expressly independent of the other terms and conditions of the employment agreement.  The non-compete provision stated as follows:

Covenants Independent.  Each restrictive covenant on the part of the Employee set forth in this Agreement shall be construed as a covenant independent of any other agreement which the Corporation and the Employee may have, fully performed and not executory, and the existence of any claim or cause of action by the Employee against the Corporation, whether predicated upon another covenant or provision of the Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of any other covenant.

The court recognized the general rule that covenants are considered dependent unless a contrary intention is expressed in an agreement.  Id. at *3 (citing Hand v. Grow Cont., Inc., 983 So. 2d 684, 687 (Fla. 1st DCA 2008)).  After review of the plain language of the agreement, the court held that the parties unambiguously intended that the non-compete provisions were independent covenants, which precluded non-payment as a defense to enforcement.

The Richland Towers court found support for its contract interpretation from the Third DCA’s decision in Reliance Wholesale Inc., v. Godfrey, 51 So. 3d 561 (Fla. 3d DCA 2010), which holds that despite a payment dispute, a former employer is entitled to enforce a non-compete provision as an independent covenant, when the plain language provides:

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

Id. at 565.

For employers looking to restrict the competing mobility of their key employees, the language of the non-compete provisions in both Reliance Wholesale and Richland Towers provides guidance in drafting non-compete provisions.  By expressly providing that the non-compete provisions are independent covenants, employers can avoid the many obstacles and costs of litigation associated with enforcement of its non-compete provisions.  Conversely, when representing an employee, the prudent lawyer will ensure that any restriction on the employee is dependent on the employer’s full performance of each covenant in the agreement.