The $20,000,000 Non-Compete
The $20,000,000 Non-Compete
If you were a kid in the 70’s, you’ll remember a TV show called The Six Million Dollar Man. It was about a man with bionic technology implants that let him achieve incredible feats and protect the United States. There was also a really cool sound effect when he jumped!
Recently, we learned the story of the Twenty Million Dollar Non-Compete. It’s about how a non-compete clause can achieve incredible feats and protect your business from rogue employees.
I am a huge proponent of every employer having an employment agreement with all key employees that includes, among other provisions, “restrictive covenants.”
Restrictive covenants include non-compete agreements that prohibit employees from competing against your business, as well as other restrictions that prohibit employees from stealing your customers, employees, vendors, and confidential information (e.g. customer list).
These protections are all critically important when your business is based on customer relationships, on information about customers, and on specialized industry expertise.
B&B v. AP
One industry in that is built on customer relationships and business expertise is the insurance business.
Brown & Brown (B&B) is a large insurance agency with 180 offices throughout the U.S., including Daytona Beach and Orlando. To protect its relationship with customers, it has its producers enter employment agreements that contain restrictive covenants. And those covenants extend two years after employment.
AssuredPartners (AP) is a competing insurance agency formed by former B&B executives. According to B&B, in 2016, AP began picking off key producers in the B&B Daytona Beach and Orlando offices who had nursing home and habitational insurance expertise, as well as relationships with B&B customers, and AP knew these employees were subject to non-compete agreements.
B&B claimed that within weeks of the employees moving to AP, these former B&B employees began soliciting B&B customers, and B&B began receiving notices to transfer customer accounts to AP.
B&B filed suit for injunctions and damages against the former employees based on their employment agreements and against AP for “tortious interference” with those employment agreements.
In March 2017, in what I believe was properly characterized as a record non-compete settlement payment, AP agreed to pay B&B $20,000,000 and agreed to an injunction preventing it from hiring B&B employees.
It is important to emphasize that $20MM was a settlement, not a judgment. AP voluntarily agreed to pay that amount rather than face the outcome of a trial. So, not only is $20MM an extremely large sum in a non-compete case in general, it is a shockingly large sum for a settlement payment in a non-compete case.
What should we take away from this incident? The monetary aspects stand out, but had there not been a valid non-compete agreement, B&B would have little or no likelihood of stopping the raid of its employees.
The key points for your business are:
- To be enforceable in Florida, non-competes and other restrictive covenants must comply with the Florida statute. If they are property prepared, restrictive covenant agreements are fully enforceable and a valid means to protect the investment you’ve made in customer relationships, employee training, and confidential information.
- Each key employee should have a signed employment agreement that contains properly written restrictive covenants.
- The restrictive covenant agreement should also contain a provision where the employee states that he or she is not subject to a non-compete with a former employer. This will help protect your business from claims for tortious interference when you had no idea about the newly-hired employee’s prior agreement.
- If a competitor poaches an employee who is subject to restrictive covenants, you must promptly notify the new employer of the covenants to protect your customer relationships and business’ confidential information.
- If you must enforce a restrictive covenant, you have to act diligently. Failing to do so could result in being unable to enforce the agreement.
Though it is unlikely an employee non-compete will get you millions of dollars, it will protect your business from rogue employees stealing valuable relationships and information that you’ve invested money to create.
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