Recently, the Florida Legislature passed the Florida Contracts Honoring Opportunity, Investment, Confidentiality, and Economic Growth Act (the “CHOICE Act” or the “Act”), which significantly expands employers’ ability to enforce covered noncompete agreements and clarifies employers’ ability to enforce “garden leave” agreements with “covered employees,” so long as certain requirements are met as to the content of the respective agreement and the manner in which it is presented to a covered employee. Governor Ron DeSantis is expected to sign the Act, which will take effect on July 1, 2025.
A “covered employee” under the CHOICE Act is defined as an employee or contractor who earns or is reasonably expected to earn a salary greater than twice the annual mean wage in the applicable county. In evaluating whether an individual meets the compensation threshold to be a “covered employee,” discretionary incentives and “anticipated but indeterminable compensation,” such as bonuses or commissions, are not counted. Significantly, the term “covered employee” does not include health care practitioners as defined by Fla. Stat. § 456.001.
Under Florida’s existing restrictive covenant statute, Fla. Stat. § 542.335 (enacted in 1996), otherwise valid post-separation restrictive covenants (such as noncompete or nonsolicitation agreements) with employees or contractors are generally presumed to be unreasonable if they exceed two (2) years in duration, in most circumstances. However, a “covered noncompete agreement” under the CHOICE Act may impose restrictions on a covered employee’s activities for as long as four (4) years after separation of employment, if various conditions, including the following, are met:
(i) the proposed noncompete agreement containing the necessary components is provided to the covered employee at least seven (7) days before the covered employee’s deadline to sign;
(ii) the covered employee is provided with written notice of the right to be advised by counsel before signing the agreement;
(iii) the covered employee acknowledges in writing that he or she will receive confidential information or customer relationships in the course of employment; and
(iv) the agreement provides for a reduction of the period during which the covered employee is restricted under certain conditions.
Additionally, the CHOICE Act makes it significantly easier for an employer to obtain an injunction enforcing a noncompete agreement against a covered employee, if the agreement and both parties are covered by the Act. By comparison, before an employer can obtain an injunction under Florida’s existing restrictive covenant statute, the employer is required to show (i) the existence of one or more legitimate business interests justifying the restrictive covenant; and (ii) that the contractually specified restraint is reasonably necessary to protect the legitimate business interest(s) justifying the restriction, in addition to proving (among other things) that the employer stands to suffer irreparable harm if an injunction enforcing the restrictive covenant is not granted. The CHOICE Act, in contrast, contains no language requiring an employer to prove (A) a legitimate business interest (other than having the covered employee acknowledge in writing that he or she will receive confidential information or customer relationships in the course of employment) or (B) that the restriction is reasonably necessary to protect that interest. Rather, the CHOICE Act provides that a covered noncompete agreement is fully enforceable according to its terms provided that the specified requirements of the Act are met, such as the above identified notice and acknowledgement requirements. Moreover, under the CHOICE Act, a court must issue a preliminary injunction against the covered former employee or their new employer “[u]pon application by a covered employer seeking enforcement of a covered noncompete agreement.” Presumably, this only requires the employer seeking enforcement to prove that the agreement meets the requirements of a “covered noncompete agreement.”
Furthermore, under Florida’s existing restrictive covenant statute, if an employee (or other party opposing the enforcement of a restrictive covenant) can prove that the restraint is not reasonably necessary to protect the employer’s established legitimate business interest(s), then the court must modify the restrictive covenant agreement and grant relief only to the extent reasonably necessary to protect the applicable legitimate business interests.
Under the CHOICE Act, however, when a covered employer makes the showing necessary to enforce a covered noncompete agreement, a court must issue a preliminary injunction against a covered employee (and/or the new employer) for the period of the noncompete restriction specified in the covered noncompete agreement. A court may only modify or dissolve an injunction against a covered employee issued pursuant to the CHOICE Act if the employee shows by clear and convincing evidence, based on nonconfidential information, that (i) the covered employee will not perform any work similar to the work performed for the covered employer or use confidential information or customer relationships of the covered employer; (ii) the covered employer has failed to pay or provide the consideration set forth in the covered noncompete agreement, despite reasonable opportunity to cure; or (iii) the business, entity or individual employing or intending to employ the covered employee is not engaged in or planning to engage in business activities similar to the business of the covered employer in the specified geographic area. The court may only modify or dissolve an injunction against the new employer if the new employer demonstrates either (i) or (iii) above by clear and convincing evidence based on nonconfidential information.
The CHOICE Act also expands Florida’s noncompete law by identifying and expressly providing for enforceability of what are defined as “covered garden leave agreements.” Under the CHOICE Act, a garden leave agreement is an agreement that prohibits the covered employee from engaging in any work similar to the services provided to the covered employer or using confidential information or customer relationships of the covered employer for a duration not to exceed four (4) years, provided that certain requirements are met, including that the employer will continue to pay the covered employee’s salary and certain benefits during the period it seeks to enforce the agreement. In essence, a garden leave agreement operates as a noncompete that allows an employer to bar the covered employee from competing during the restrictive period so long as the covered employee continues receiving their salary and certain benefits. It is called a “garden leave” agreement because, although the covered employee is treated as still being an employee subject to the restrictive covenants and continues to be compensated by the covered employer, the covered employee is not required to perform any work for the covered employer and can simply go home and “tend to his or her garden” during the specified period of continued compensation. Nevertheless, it is hard to envision many employers will promote the use of garden leave agreements, given that there is no requirement to compensate a covered employee to enforce a covered noncompete agreement for the same duration under the CHOICE Act.
From the perspective of covered employers, the CHOICE Act is a double-edged sword. On the positive side, in certain circumstances, a covered employer (let’s call it ABC Co.) will have an increased ability to enter into and enforce true noncompete agreements with its covered employees for up to four years. At the same time, however, it will be easier for ABC Co.’s competitors to enforce their own covered noncompete agreements against their former covered employees who might seek to go to work for ABC Co., as well as to enforce such agreements against ABC Co. itself.
Finally, employers should note they may still enter into restrictive covenants that do not fall within the CHOICE Act’s provisions (e.g., for workers who do not meet the CHOICE Act’s definition of “covered employee” because they do not receive sufficient compensation); such agreements will be governed by the provisions of the existing restrictive covenant statute, which will remain in effect.
Employers should consult with employment counsel for guidance to analyze whether the CHOICE Act may present opportunities for entering into or bolstering existing restrictive covenant agreements in accordance with the requirements of the Act and to discuss the potential repercussions of doing so.
