Florida’s Non-Competition Statute Governs More Than Just Competition, and Pleading the Statute’s Factors as an Affirmative Defense Might Not Be Required

In an appellate opinion that starts with a discussion about an alleged breach of a real estate listing agreement, but then becomes focused on pleading claims involving Fla. Stat. §542.335, a Florida Appellate Court both: (i) reminds us that Florida’s statutory scheme applicable to non-competition agreements applies more broadly to general restrictive covenants, such as confidentiality agreements; and (ii) informs us that a defendant need not assert an affirmative defense to preserve an argument that a plaintiff has failed to satisfy the statutory requirements.  See Rauch, Weaver, Norfleet, Kurtz & Co. v. AJP Pine Island Warehouses, Inc., Case No. 4D20-352, 46 Fla. L. Weekly D591 (Fla. 4th DCA 2021).

Florida appellate caselaw is replete with discussions of Florida’s statutory scheme that governs non-competition agreements.  Enacted during 1996, and codified at Section 542.335 of the Florida Statutes, the statutory scheme is most regularly seen in disputes involving the enforcement of non-competition and non-solicitation covenants that are part of employment contracts or business-sale agreements. The statutory scheme requires plaintiffs to “plead and prove” certain matters, such as “that the contractually specified restraint is reasonably necessary to protect the legitimate business interest or interests justifying the restriction.” Fla. Stat. §542.335(1)(c). The litigation of what constitutes “legitimate business interests” is oftentimes seen in disputes involving preliminary injunction motions against former employees who have allegedly violated a post-termination restrictive covenant that precludes, for example, competing with the prior employer within a defined geographical area.

However, in Rauch, the Fourth District Court of Appeal discussed Section 542.335 in the context of a claim that a prospective buyer violated a confidentiality and non-negotiation provision in a document that a listing broker provided to the prospective buyer as part of efforts to sell commercial real property. Specifically, the broker claimed that the buyer violated the following provisions by, after the listing agreement had expired, directly negotiating with the seller and ultimately purchasing the property without paying any fee to the broker (and apparently in the context of an expired listing agreement that contained no tail provision that required the seller to pay the broker):

By acknowledgment of receipt of this confidential information …, you hereby agree:
1. That you will hold and treat it in the strictest of confidence, and that you will not, directly or indirectly, disclose this information to any other person, form or entity without prior authorization of the listing agent, and:
2. That you will not contact or negotiate in any way with the owners of the property as long as title to the properties are held by the current owners…

Id. at *1. In defending against the broker’s claims, the buyer argued that the covenants were governed by Section 542.335 and, pursuant to that statute, the covenants were not enforceable because the buyer did not sign the document and because the broker “failed to plead or prove that the restrictive covenant was reasonably necessary to protect any legitimate business interests.” Id. at *2. The trial court agreed with the buyer and entered summary judgment accordingly.

On appeal, the broker argued that its alleged failure to comply with Section 542.335 constituted an affirmative defense, which must be pleaded.  In rejecting the argument, the appellate court explained:

Here, the trial court properly relied upon section 542.335 to analyze the enforceability of the confidentiality agreement, notwithstanding [the buyer’s] failure to plead the statute as an affirmative defense. Section 542.335 sets forth elements that the plaintiff, as the party seeking enforcement of the restrictive covenant, has the initial burden to “plead and prove.” Under the section 542.335 framework, a restrictive covenant is void unless it is reasonably necessary to protect a legitimate business interest. The threshold requirements of section 542.335 are essential elements in any cause of action concerning enforcement of a restrictive covenant. An affirmative defense, by contrast, is an issue on which the defendant bears the burden of proof. Thus, with a possible exception not applicable here, section 542.335 factors are not affirmative defenses in an action for breach of contract based on an alleged violation of a restrictive covenant.

Id. at *4 (footnote omitted) (bold emphasis supplied). Notably, this holding is a departure from prior caselaw that suggested pre-1996 versions of the statute provided a basis for affirmative defenses, which must be pleaded.  Also notable is a footnote to the above-cited passage that suggests some language of Section 542.335(1)(c) might require pleading an affirmative defense, specifically with regard to defenses that the “specified restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest or interests.” However, that language was not relevant here, the appellate court concluded, because the plaintiff-broker failed to plead and prove the prima facie elements required by Section 542.335.

While the primary and most significant take-away from this appellate opinion is its holding that defendants need not plead Section 542.335 factors as affirmative defenses, other issues are either noteworthy or just plain curious. First and perhaps foremost, this case underscores the importance of including tail-periods in written fee agreements between listing brokers and sellers of property. If the broker in this case had included such a tail-period in its listing agreement, the provision may have entitled the broker to payment of its fee without having to litigate with the buyer or anyone else.  Second, and just plain curious, is the lack of any discussion within the appellate opinion regarding why the court concluded that the buyer did not “sign” the confidentiality agreement, although the buyer “hand wrote her name and contact information under the signature line and returned the agreement to the Broker in October 2014” and “later testified that she intended to be bound by the agreement.” Id. at *1. Discussion of this signature issue is beyond the scope of this short case note, but practitioners should flag this issue for consideration when reviewing restrictive covenant disputes, to wit: does whatever the person wrote beneath his or her signature line constitute a “signature” by that person?

Matthew J. Meyer is a Partner in our Florida office.