A New York appellate court has ruled that Florida law on non-compete agreements is "truly obnoxious" to New York public policy and cannot be applied against a New York employee of a Florida-based company.
The court's decision in Brown & Brown, Inc. v. Johnson and Lawley Benefits Group, LLC, 2014 WL 486750 (N.Y.A.D. 4 Dept., February 7, 2014) is significant because it is common for companies based in Florida to insert choice-of-law provisions in their non-compete agreements which provide that Florida law shall govern in the event of a lawsuit – regardless of where the employee works. The Brown & Brown decision suggests that employers should rethink this strategy.
Brown & Brown ("B&B") is an insurance intermediary with headquarters in Florida. B&B hired defendant Theresa Johnson in 2006 to provide actuarial analysis. Johnson signed an employment agreement that contained three restrictive covenants, including a non-solicitation clause that prohibited Johnson from soliciting or servicing any client of B&B’s New York offices for two years after the termination of her employment. The agreement contained a Florida choice-of-law provision. B&B terminated Johnson in February 2011, and Johnson was subsequently hired by Lawley Benefits Group, LLC. B&B sued to enforce the restrictive covenants.
The trial court ruled that the choice-of-law provision was unenforceable because Florida bore no reasonable relationship to the parties or the dispute. The appellate court disagreed but held that the choice-of-law provision was unenforceable for a different reason – because it is “truly obnoxious’ to New York public policy. Specifically, the court noted that under New York law, one of the factors for determining whether a restrictive covenant is reasonable is whether it imposes an undue hardship on the employee. In contrast, under Florida law, courts are required to construe restrictive covenants in favor of the party seeking to protect its legitimate business interests, and in evaluating the reasonableness of the covenant the court cannot consider the hardship imposed upon the employee. Applying New York law, the court held that the non-solicitation covenant could not be enforced.
The Brown & Brown case is not an anomaly. The opinion notes that courts in Alabama, Georgia, and Illinois have also concluded that Florida law conflicts with the public policy of their respective states. On the other hand, many courts in other states will enforce choice-of-law provisions. So what should a Florida employer do with respect to the restrictive covenants of its out-of-state employees? The best practice is to consult with legal counsel and determine whether a court in the other state is likely to enforce a Florida choice-of-law provision. If the answer is yes, a Florida choice-of-law provision may be an employer's best bet. If the answer is no, the covenants should be drafted so that they will pass muster under the laws of the state in which the employee works.