USING Restrictive COVENANTS TO BENEFIT RETENTION Daniel E USING Restrictive COVENANTS TO BENEFIT RETENTION Daniel E. Harrell Employment Litigator

OVERVIEW Examples of Restrictive Covenants Importance for Retention Purposes Parameters for Restrictions Enforcement Questions

WHAT IS A RESTRICTIVE COVENANT? Non-Compete Agreements Non-Solicitation Agreements Confidentiality Agreements Intellectual Property Agreement Any other Restriction on Post-Employment activity

EXAMPLE - NON-COMPETE AGREEMENT “During my employment and for a period of two (2) years following voluntary or involuntary termination of employment with the Company, I agree that I will not, directly or indirectly, enter into employment with, perform services for, or obtain any ownership interest in a Competing Business (hereinafter defined) that engages in activity or is located within One Hundred (100) miles of the Company's principal place of business.”

EXAMPLE - NON-SOLICTATION AGREEMENT “For a period of two (2) years following voluntary or involuntary termination of employment with the Company, I agree that I will not, directly or indirectly, Call upon, solicit, divert, take away, accept or conduct any business from or with any current, former or prospective clients, or any of the suppliers or subcontractors, of the Company with whom I have had any business-related contact during my employment with the Company, for the provision of services or products similar to those provided or contemplated to be provided by the Company.”

EXAMPLE - CONFIDENTIALITY AGREEMENT “At all times, both during and after my employment, I will keep in confidence and trust all such Proprietary Information. I will not, at any time, without the Company’s prior written permission, either during or after my employment, disclose any Proprietary Information to anyone outside of the Company, or use or permit to be used any Proprietary Information for any purpose other than the performance of my duties as an employee of the Company. I will cooperate with the Company and use my best efforts to prevent the unauthorized disclosure or use of any and all Proprietary Information.”

IMPORTANCE OF RESTRICTIVE COVENANTS Retention is a major issue for employers 33% of New Hires Quit within Six Months 35% of Employees are Looking for New Jobs Nearly 50% of Employees would take a new job for a nominal pay increase 25% of Employees are High-Retentions Risks

IMPORTANCE OF RESTRICTIVE COVENANTS Retention is a major issue for employers 93% of Millenials will leave for “role” changes 70% of High Retention Risk Employees believe they must leave to advance careers $11.0 Billion lost annually to employee turnover Ease of Transition has flattened the market

IMPORTANCE OF RESTRICTIVE COVENANTS Employee Retention Costs The Cost of Recruiting $3,500 for $8/hr position The Cost of Training Average of 40 hrs of training per year The Break-Even Point 5-6 Months before New Hire Reaches Full productivity

IMPORTANCE OF RESTRICTIVE COVENANTS How do Restrictive Covenants Help? A recognized investment in one another. Consequences to Employee for Transition. Additional Comfort in Expending Training Costs. Less concern over training a competitor’s work force. Quicker engagement for both employer and employee.

Parameters for Restrictions The Law does not allow a blanket restriction on competition. Restrictions must be limited to protect “Legitimate Business Interests” Restrictions must be reasonable in time, geography and lines of business Restrictive covenants must be in writing and signed

“Legitimate Business Interests” Fla. Stat. § 542.335(B)(1) establishes non-exclusive list of “Legitimate Business Interests” Trade Secrets Confidential Non-trade Secret Information Customer, Patient or Client Goodwill Substantial Relationships with Specific Prospective or Existing Customers Extraordinary or Specialized Training

“Legitimate Business Interests” Most restrictive covenant disputes involve disagreements over this issue. There is a lot of gray area in the law Example: Physicians and Prospective Patients Example: Physician and Referral Sources An employer cannot restrict someone from doing something that they are not doing.

Temporal and Geographical Scope Temporal Scope Less than six months is per se reasonable More than five years is per se unreasonable For most non-ownership positions, two years will be upheld as reasonable Geographical Scope Highly dependent on Work Area Must demonstrate need for an expansive scope

Enforcement of Restrictive covenants Damages Equitable Relief Temporary or Permanent Injunction Legal Relief Monetary Damages Attorney’s Fees Tortious Interference Claims

Enforcement of Restrictive covenants Common Defenses: Overbreadth Unclean Hands Prior Breach of Contract Failure to Pay, Change of Benefits, etc. Harassment or Discrimination

Enforcement of Restrictive covenants Temporary Injunction Phase A Temporary Injunction is Designed to Protect Status Quo Courts consider a temporary injunction to be an Extraordinary Remedy Asking the Court to put former employee out of work pending a full-blown trial While Florida law is favorable to enforcement, some judges tend to have difficulty putting people out of work

Enforcement of Restrictive covenants Temporary Injunction Phase Must Prove Four Elements to Obtain Temporary Injunction: IRREPARABLE HARM LACK OF ADEQUATE REMEDY AT LAW SUBSTANTIAL LIKELIHOOD OF SUCCESS ON MERITS ENFORCEMENT DOES NOT CONTRADICT PUBLIC POLICY

Enforcement of Restrictive covenants Statutory Presumptions Irreparable Harm is Presumed Contract Enforcement is Public Policy Individualized economic hardship can not be considered by the Court Contract Construction Rules requiring a narrow interpretation are inapplicable

Enforcement of Restrictive covenants Beyond Litigation Strong Negotiation Tool Protection of Client/Customer Interests Most Competitors will recognize their risks of supporting an employee in violation Specter of Attorney’s Fees – Tail Wagging the Dog

SUMMATION Restrictive Covenants are an important tool all companies should consider implementing. Litigation over these issues is on the rise, so be careful with your own hiring process. If you find yourself in a position where a restrictive covenant issue is looming, contact counsel early.

Daniel E. Harrell CLARK PARTINGTON 125 W. Romana Street, Suite 800 Pensacola, Florida 32504 (850) 208-7033 – Direct dharrell@clarkpartington.com