How a Few Simple Words Made the Difference Between a Good Deal and a Disaster.
A recent court decision from South Florida shows just how important it is to be accurate when writing contracts and how simple language can make a big difference.
I’ll tell you what happened in that case, what it means for you and how you can protect your business.
This case started when the owners of Coastal Loading, a roof tile loading and hauling business, put it up for sale. A couple decided to buy the business and, in early 2004, negotiated a contract. Among other things, that contract said that the sellers would agree “not to compete with the business being sold.”
As often happens, the buyer and seller signed the contract before they closed the deal. So, at the closing a few months later, the sellers and buyers negotiated and signed a separate non-compete and non-solicitation agreement.
That agreement said the sellers would not compete in the “roof tile loading” business for 5 years and would not “call on or solicit” seller’s customers.
You probably know where this is going.
Of course, a few months later the buyers discovered that the sellers had hauled roof tiles for a former Coastal customer. The sellers said the customer had called them and requested their services. So, they did the work.
The buyer was understandably upset and filed a lawsuit to stop the competition and solicitation. The trial court agreed with the
buyers and ordered the sellers not to do roof tile hauling and not to contact or do business with the buyer’s customers.
The sellers appealed.
Non-compete and non-solicitation agreements are enforceable in Florida only if they meet statutory requirements, including that they be in writing and signed by the person to be restricted.
Based on that requirement, the appeals court removed the order, ruling that the sellers did not breach the non-compete agreement.
The court said that roof tile hauling and roof tile loading are two separate businesses. Since the non-compete agreement only referenced the roof tile loading business, the sellers were not prohibited from roof tile hauling.
Furthermore, to add insult to injury, because the buyers didn’t prove that sellers contacted the Coastal customer, the court also ruled that there was no violation of the non-solicitation agreement.
So, the sellers get the buyer’s money and can make more money by competing against the buyers and doing work for the buyer’s customers.
Why? All because of a few simple words in a contract.
What does this mean for your business?
Well, let me ask you: What would happen if an employee used your customer list or the industry knowledge he learned while
working for you to compete against you? Would they undercut your prices? Would they cherry pick your best accounts? What if you thought you were protected only to find out later that you weren’t?
How do you avoid these disasters?
First, understand that this court decision isn’t limited to the sale of a business. It affects all contracts, including employee non-compete agreements.
Second, make sure your employee non-compete and non-solicitation agreements contain two things: an accurate description of all your business’ activities and a
paragraph that automatically updates the business activities as they change over time.
Finally, make sure all of your employee non-solicitation agreements prohibit accepting business from your customers (and not just calling or soliciting them). Otherwise enforcing the non-solicitation agreement is very difficult (if not impossible); you’ll have to prove your former employee actually called on your customer.
If you’d like help to make sure you don’t suffer the disaster of the Coastal Loading buyers, please call me. I’d be glad to talk with you.