Independent Contractor And Former Employee May Be Bound By Non-Compete Agreement, Florida Court Rules

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Section 542.335 is the Florida statute that governs non-compete agreements.  As most practitioners know, the statute is not limited to employment relationships.  Thus, it is not uncommon for businesses and independent contractors to enter into non-compete agreements.  

But what happens when an employee who has signed a non-compete agreement becomes an independent contractor of that business?  Can the worker be bound by the non-compete agreement that she signed when she was an employee?  According to Florida’s Fourth District Court of Appeals recent decision in Anarkali Boutique v. Ortiz (Fla. 4th DCA, December 12, 2012), the answer is "yes."

Anarkali Boutique hired Nahomi Ortiz as an employee in 2008.  Ortiz signed a non-compete agreement in consideration for her "continued at-will employment by [the company]."  The agreement contained a 100-mile restriction that applied for "two (2) years after I am no longer employed by Company."  The agreement also stated that "[a]ny subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement."

In 2009, after building her own clientele, Ortiz began working for the boutique as an independent contractor.  In 2011, Ortiz left Anarkali, started a competing business less than 5 miles away, and took many of Anarkali's customers with her.  Anarkali sued Ortiz for violating her non-compete agreement. 

In the trial court, Ortiz argued that when the company changed her status to an independent contractor, she ceased being an employee under the agreement, and thus the two-year non-compete period began running at that time. Because that two-year period expired before she left to start her business, Ortiz argued that she was not bound by the non-compete agreement.  The trial court agreed and denied Anarkali’s motion for a temporary injunction on this basis alone.

But on appeal, the Fourth DCA reversed the trial court's decision and remanded the case for further consideration by the trial court.  The Fourth DCA noted that the agreement was not entirely clear, as it referred to "employment" but also stated that "[a]ny subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement."  The court resolved this apparent conflict by giving effect to the intent of the parties.  The "obvious purpose" of the agreement, the court concluded, "was to preclude the worker from competing with the company after the company trained the worker and allowed her to build her own clientele."  Thus, the two-year period began running when Ortiz left the boutique, not when she became an independent contractor two years earlier. 

For employers, the takeaway of the Anarkali case is that careful drafting of non-compete agreements is critical. Although the employer in Anarkali may ultimately prevail, it could have avoided an adverse ruling in the trial court if the non-compete agreement had been drafted to expressly cover an independent contractor relationship.  As noted above, section 542.335 authorizes such agreements.

Topics:  Independent Contractors, Non-Compete Agreements

Published In: Civil Procedure Updates, General Business Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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