Restrictive Covenants 101: An Intro to Confidentiality, Non-Solicitation & Non-Compete Agreements

There are three main agreements or restrictive covenants regularly used by business owners to limit disclosure or competition.

A common dilemma encountered by many Florida business owners is how to protect their companies’ private information and client relationships from current and former employees or contract workers.

There are three main agreements or restrictive covenants regularly used by business owners to limit disclosure or competition. They include confidentiality, non-solicitation and non-compete agreements or provisions.

While all three restrictions are usually included in one document, they each serve a different purpose and protect different aspects of the subject business. 

Confidentiality Agreements

The least restrictive of the three types of agreements is a Confidentiality Agreement (also referred to as Nondisclosure Agreements or “NDA”), which protects a company’s propriety or confidential information from unauthorized disclosure. Confidentiality agreements, which are typically enforceable until the information is no longer confidential and not necessarily duration-specific, are permitted in Florida as long as they restrict the unauthorized disclosure of actual confidential information.

Confidential information, however, is defined as information that is not available to the public or cannot be easily found in public records such as profit margins, vendor identity and pricing, business plans, protocols or any other similar type of information that may be valuable to a company’s competitors.

Non-Solicitation Agreement

These agreements typically limit a former or current employee from being able to solicit either customers or other employees to leave the company and move to a competitor company. In addition to being in writing, Non-Solicitation Agreements must meet three specific criteria to be enforceable in Florida:

• The agreement must have a valid business purpose.
• The agreement may not be overly restrictive in that it cannot prevent employees from reasonably earning a living for extended periods of time or to an extended geographic area. Typically, these agreements usually are limited to two years post-employment.
• The agreement must be clear and unambiguous. Courts regularly deem ambiguous contract language as unenforceable.

Consequently, the most effective and legally sound Non-Solicitation Agreements are narrow and well-tailored to the specific objectives and needs of the company, rather than being overly broad and all-inclusive.

Non-Compete Agreement

Non-Compete Agreements, which are governed by § 542.335, Florida Statutes, prohibit former or current employees from starting their own similar type companies or from being employed by a competitor company for a specified period of time. Under the Florida Statutes, these contracts that “restrict or prohibit competition during or after the term of restrictive covenants”, may be enforceable so long as they are reasonable in time, area, and line of business.” As such, these agreements, which also must be in written form, are highly contestable and cannot be entered into solely for the purpose of restricting competition.

Similarly to Non-Solicitation Agreements, to enforce a Non-Compete Agreement, a company must prove that it has a protectable legitimate business interest such as a trade secret, valuable information that may not otherwise qualify as a trade secret, substantial relationships with specific clients, and accrued good will related to its trademark or location. The company must also establish that the proposed restriction is geographically and durationally reasonable. This determination is typically contingent on the specific interest being protected.

When selecting which of these agreements is appropriate for your business, risk levels related to goods and services offered, client relationships, trade names, and other intellectual property of the particular company must be examined. Usually, the higher the risk of harm in the case of a disclosure, the greater the need to propose one of these agreements to employees or contract workers.

Conclusions with respect to Restrictive Covenants

However, given the potential complexity and the contestability of these documents, it is imperative to ensure that the Agreement is tailored to your company’s specific needs and follows Florida laws. For these reasons, it is advisable to consult with an experienced attorney to help you achieve your specific objectives. It is also important to revisit your Agreements regularly to make sure they continue to meet your changing needs and remain legally compliant.

If you are looking to protect your small business’ confidential information or client relationships, contact us today to discuss how we may be able to help you draft an effective, legally compliant Agreement.