Tag Archives: employment agreement

DEMONSTRATING A FRAUDULENT INDUCEMENT CLAIM OR DEFENSE

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In a recent case, Florida’s Fourth District Court of Appeal reversed a trial court’s denial of a motion for a temporary injunction sought by an employer due to an independent contractor’s violation of a non-compete and non-solicitation provision in an employment / independent contractor agreement (“employment agreement”). You can find more on this case and the enforcement of the non-compete and non-solicitation clause here.

A worthy discussion in this case centers on the independent contractor’s fraudulent inducement defense. Specifically, the independent contractor, as a defense to the injunction, claimed that he was fraudulently induced into entering into the employment agreement because the employer promised he would make a certain amount of money and he would work predominantly in one geographic location. The employment agreement contained NO such representations. Instead, the employment agreement contained a fee and services schedule and the independent contractor would be compensated based on that schedule. It stated nothing as to the independent contractor only having to work, or predominantly working, in one geographic location, or that the independent contractor would be guaranteed “X” amount of money working in that location. Why is this important?

In order to support a claim or defense of fraudulent inducement, a party must prove the following elements: “1) a false statement concerning a material fact, 2) knowledge by the person making the statement that the representation is false, 3) intent by the person making the statement that the representation will induce another to act upon it, and 4) [justifiable] reliance on the representation to the injury of the other party.” GEICO General Ins. Co. v. Hoy, 136 So.3d 647, 651 (Fla. 2d DCA 2013 (citation omitted); see also Hillcrest Pacific Corp. v. Yamamura, 727 So.2d 1053, 1055 (Fla. 4th DCA 1999). “[T]o satisfy the element of an injury, the claimant must establish that he or she has sustained pecuniary damage or injury by which he or she has been placed in a worse position than he or she would have been absent the fraud.” Hoy, 136 So.3d at 651.

However, and this is a BIG however, “[A] party cannot recover in fraud for oral misrepresentations that are [covered or] later contradicted in a written contract.” Picture It Sold Photography, LLC v. Bunkelman, 45 Fla. L. Weekly D74a (Fla. 4th DCA 2020).

The employment agreement stated it was the entire agreement between the parties. (There is a reason why agreements contain language that states that the agreement is the final and complete agreement between the parties and supersedes prior agreements and representations between the parties. Such provision is not for naught!)

Hence, the independent contractor’s claim that he was induced into entering the agreement based on making a certain amount of money was covered by the agreement that contained a schedule for services and the corresponding fees.  As mentioned, the agreement did not promise a certain amount of money and/or the money would be based on the independent contractor working in a certain location.   In other words, you cannot claim fraud in the inducement if your contract contradicts what you are claiming or the agreement covers that issue.

Further, even if there was an argument that there were misrepresentations as to money and location, the independent contractor would still need to demonstrate that he justifiably relied on the misrepresentations. “Without justifiable reliance, there can be no actionable fraud.” Bunkelman, supra (citation omitted).

 

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.

 

VALIDITY OF NON-COMPETE AGREEMENTS

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The validity of a non-compete agreement (also referred to as a restrictive covenant since it imposes a restriction on trade or commerce) will be governed by Florida Statute s. 542.335.  (A copy of this statute is set forth below).  Written and signed non-compete agreements or clauses are presumptively valid if they are reasonable in time (the non-compete time period), area (geographic limitation), and line of business; these clauses cannot be overbroad.

 

Even if the non-compete agreement is in writing and signed by the employee, it still needs to be supported by a proven legitimate business interest justifying its enforcement (e.g., learning of trade secrets or confidential business information, relationships with customers or clients, customer or client goodwill associated with the business). Stated differently, the employer seeking to enforce the non-compete agreement against a former employee still needs to establish that the enforcement of the non-compete is reasonably necessary to protect its legitimate business interests.

 

To enforce non-compete agreements, a party (typically, the former employer) moves for injunctive relief.

 

The case of Ankarli Boutique, Inc. v. Ortiz, 2014 WL 6674727 (4th DCA 2014) held that a two-year non-compete agreement, to the extent valid, applied from the time the former employee left the company.  The case also maintained that the non-compete period could not be “nullified because the non-compete period was devoured by the time it took to appeal an erroneous ruling on the interpretation of the [non-compete] clause.” Ankarli Boutique, supra, at *1.   In other words, if there is a delay in entering a ruling (i.e., an injunction) enforcing the non-compete clause, or the non-compete time period is consumed during the pendency of an appeal, the employer or party enforcing the clause is still entitled to reap the benefit of a valid non-compete clause.  Thus, any delay tactic by litigating the issue or appealing the issue should not nullify an otherwise valid non-compete clause.

 

 Florida Statute s. 542.335

(1) Notwithstanding s. 542.18 and subsection (2), 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. In any action concerning enforcement of a restrictive covenant:

(a) 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.

(b) 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. The term “legitimate business interest” includes, but is not limited to:

1. Trade secrets, as defined in s. 688.002(4).

2. Valuable confidential business or professional information that otherwise does not qualify as trade secrets.

3. Substantial relationships with specific prospective or existing customers, patients, or clients.

4. Customer, patient, or client goodwill associated with:

a. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;

b. A specific geographic location; or

c. A specific marketing or trade area.

5. Extraordinary or specialized training.

Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.

(c) A person seeking enforcement of a restrictive covenant also shall plead and prove that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction. If a person seeking enforcement of the restrictive covenant establishes prima facie that the restraint is reasonably necessary, the person opposing enforcement has the burden of establishing that the contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests. If a contractually specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the legitimate business interest or interests, a court shall modify the restraint and grant only the relief reasonably necessary to protect such interest or interests.

(d) In determining the reasonableness in time of a postterm restrictive covenant not predicated upon the protection of trade secrets, a court shall apply the following rebuttable presumptions:

1. In the case of a restrictive covenant sought to be enforced against a former employee, agent, or independent contractor, and not associated with the sale of all or a part of:

a. The assets of a business or professional practice, or

b. The shares of a corporation, or

c. A partnership interest, or

d. A limited liability company membership, or

e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 6 months or less in duration and shall presume unreasonable in time any restraint more than 2 years in duration.

2. In the case of a restrictive covenant sought to be enforced against a former distributor, dealer, franchisee, or licensee of a trademark or service mark and not associated with the sale of all or a part of:

a. The assets of a business or professional practice, or

b. The shares of a corporation, or

c. A partnership interest, or

d. A limited liability company membership, or

e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 1 year or less in duration and shall presume unreasonable in time any restraint more than 3 years in duration.

3. In the case of a restrictive covenant sought to be enforced against the seller of all or a part of:

a. The assets of a business or professional practice, or

b. The shares of a corporation, or

c. A partnership interest, or

d. A limited liability company membership, or

e. An equity interest, of any other type, in a business or professional practice,

a court shall presume reasonable in time any restraint 3 years or less in duration and shall presume unreasonable in time any restraint more than 7 years in duration.

(e) In determining the reasonableness in time of a postterm restrictive covenant predicated upon the protection of trade secrets, a court shall presume reasonable in time any restraint of 5 years or less and shall presume unreasonable in time any restraint of more than 10 years. All such presumptions shall be rebuttable presumptions.

(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:

1. 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.

2. In the case of an assignee or successor, the restrictive covenant expressly authorized enforcement by a party’s assignee or successor.

(g) In determining the enforceability of a restrictive covenant, a court:

1. Shall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.

2. May consider as a defense the fact that the person seeking enforcement no longer continues in business in the area or line of business that is the subject of the action to enforce the restrictive covenant only if such discontinuance of business is not the result of a violation of the restriction.

3. Shall consider all other pertinent legal and equitable defenses.

4. Shall consider the effect of enforcement upon the public health, safety, and welfare.

(h) A court shall construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests established by the person seeking enforcement. A court shall not employ any rule of contract construction that requires the court to construe a restrictive covenant narrowly, against the restraint, or against the drafter of the contract.

(i) No court may refuse enforcement of an otherwise enforceable restrictive covenant on the ground that the contract violates public policy unless such public policy is articulated specifically by the court and the court finds that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests established by the person seeking enforcement of the restraint.

(j) A court shall enforce a restrictive covenant by any appropriate and effective remedy, including, but not limited to, temporary and permanent injunctions. The violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant. No temporary injunction shall be entered unless the person seeking enforcement of a restrictive covenant gives a proper bond, and the court shall not enforce any contractual provision waiving the requirement of an injunction bond or limiting the amount of such bond.

(k) In the absence of a contractual provision authorizing an award of attorney’s fees and costs to the prevailing party, a court may award attorney’s fees and costs to the prevailing party in any action seeking enforcement of, or challenging the enforceability of, a restrictive covenant. A court shall not enforce any contractual provision limiting the court’s authority under this section.

(2) Nothing in this section shall be construed or interpreted to legalize or make enforceable any restraint of trade or commerce otherwise illegal or unenforceable under the laws of the United States or of this state.

(3) This act shall apply prospectively, and it shall not apply in actions determining the enforceability of restrictive covenants entered into before July 1, 1996.

 

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.