In Support of “Reasonableness” in Florida Non-Compete Agreements

Encouraging Salespersons to Read and Negotiate Before Signing¹

Introduction

Over the years, I have represented numerous medical device manufacturers, distributors and salespeople, drafting, negotiating, interpreting and, sometimes, litigating over agreements containing post-termination restrictions on sales activities.  This article was written with medical device sales representatives in mind but applies to any individual or entity asked to sign an agreement containing what is generally referred to as a “non-compete” (hereinafter referred to as a “restrictive covenant”).  This article does not advocate for any specific form of a restrictive covenant but suggests that smart manufacturers and distributors recognize that agreements can protect their interests without being draconian and that sometimes flexibility is needed in order to attract the best personnel.  Finally, manufacturers and distributors should not want to be put in a position of enforcing an overly protective non-compete merely because it is being breached.  As a result, individuals asked to sign a restrictive covenant should consider at least attempting to negotiate terms before signing it.

An Overview of Restrictive Covenant Agreements

Florida statutes (and the law in many other states) expressly allow agreements that restrict or prohibit competition.  In Florida, to be enforceable, a restrictive covenant must be reasonable in time, area and line of business and the covenant must protect a legitimate business interest.  In the field of medical device sales, the primary legitimate business interest to be protected is almost always customers.  The law in Florida allows for the protection of “substantial business relationships with specific prospective or existing customers, patients or clients” and most restrictions with salespersons tend to be applicable during the relationship and for one to two years thereafter.

Considerations for Manufacturers and Distributors

Generally, salespeople will be in a better position to establish close relationships with customers than other representatives of a manufacturer or a distributor and there is no doubt that, historically, customers will sometimes move their business when a salesperson or other key employee moves from one job to another.  As a result, manufacturers and distributors seek post-termination competitive restrictions from salespeople.  Under the law, they have every right to do so.  Those restrictions, however, must be reasonably necessary to protect their relationships with specific prospective and existing customers.

Reasonable manufacturers and distributors recognize that the purpose of a restrictive covenant should be to protect them from suffering any harm (primarily financial) when a sales representative leaves or is terminated.  They do not want to spend money attempting to enforce restrictions when a violation of those restrictions is not causing any damage (although some feel compelled to do so simply to make a statement to other salespeople with restrictive covenant agreements).  In addition, judges may be influenced if a restrictive covenant agreement appears to be overly restrictive and unfair to an individual employee or contractor.  Finally, as noted in a recent online article, courts outside of Florida are becoming increasingly critical of and unwilling to enforce non-compete agreements and laws which appear to favor employers.[1]  Accordingly, manufacturers and distributors should be willing to negotiate the terms of an agreement so that the restrictions are no broader than necessary to protect their legitimate interests in substantial customer relationships.

Areas of Concern for Salespersons

At the outset, it is important to note that a number of factors may impact a salesperson’s negotiating power. For example, an experienced salesperson with numerous long-term relationships with customers loyal to him or her is likely to be in a better bargaining position when negotiating a contract with a manufacturer or distributor than a salesperson with little experience.  Similarly, when negotiating with a manufacturer or distributor with little or no sales in a particular territory, a qualified salesperson may have additional leverage.

A salesperson’s primary concern must be the scope of the restrictions to which he or she asked to agree.  Restrictive covenants generally come in two forms.  The first is a non-solicitation provision.  This type of provision states that a former salesperson may go to work for a competitor so long as the salesperson does not solicit or do business with customers of his/her former manufacturer or distributor for a specified period of time.  The broader form of a restrictive covenant is a non-compete.  A non-compete states that a former salesperson may not go to work, in any capacity, for a competitor for a specified period of time.  Usually, a non-compete provision has geographical limitations to it.  For example, it might provide that a salesperson may not compete in certain counties or cities within a state or its restrictions might apply to named hospitals in a region.  Obviously, if a salesperson who is negotiating a contract must agree to post-termination restrictions, he/she will prefer to agree to a non-solicitation rather than a non-compete.

While the non-solicitation vs. non-compete issue will likely be the most important, there are a number of other subjects which a salesperson may try to negotiate.  If agreeing to stay away from “customers” what is the definition of a customer?  Will the restrictions be enforceable regardless of when an agreement is terminated, who terminates it, and why it was terminated?  For example, could a manufacturer terminate a salesperson without cause one month after he or she signed a restrictive covenant agreement and then enforce a one or two-year non-compete? Is it possible that the restrictive covenant is important enough to a manufacturer or distributor that the manufacturer or distributor would be willing to pay a salesperson to abide by the agreement?  Finally, to what products will the restrictions apply?  Just those products that the salesperson sold or every product sold by the manufacturer?  These are just some of the areas ripe for negotiation.

Conclusion

In conclusion, a salesperson who is asked to sign any form of a restrictive covenant agreement, should not feel powerless to negotiate the terms of the agreement. A large, established manufacturer hiring a brand-new sales representative may be in a position to say: “take it or leave it.”  In many cases, however, manufacturers and distributors are willing to change the terms of an agreement so long as their primary interest in substantial customer relationships is protected.

[1] The author, Mark L. Van Valkenburgh is a Florida employment lawyer and refers to Florida’s statutes and case law in this article.  However, all states that allow restrictive covenant agreements include some requirement that the restrictions in those agreements be “reasonable.”
[2] Jackson, H. (2018). Florida’s Noncompete Statute: “Reasonable” or “Truly Obnoxious?”. [online] The Florida Bar. Available at: https://www.floridabar.org/the-florida-bar-journal/floridas-noncompete-statute-reasonable-or-truly-obnoxious/ [Accessed 30 Sep. 2019].

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