Offense Can Be A Great Defense To Non-Compete Agreements
I have a fairly unique perspective on non-compete agreements, as I’ve found myself litigating in Court on both sides (but not at the same time of course) of the issues involved during my practice.
Recently, a few individuals were referred to me because they received a cease and desist letter in which a local law firm demanded that my (soon to be) clients stop operating their competing business because they entered into a non-compete agreement while working as independent contractors. The company they used to work for not only demanded that they shut their business down, but that they also pay for the damages in the form of lost profits they supposedly caused by allegedly stealing customers and the business model.
I could have gone ahead and argued directly against certain aspects of the non-compete agreement, but instead, I took a broader view of the relationship between the parties and was able to determine that my clients were misclassified as independent contractors when they should have been classified (and paid) as employees. Based on the hours worked both inside of the office and out, and the manner in which my clients were paid, my clients understood how they were working overtime (more than 40 hours in a workweek) but not being paid overtime wages calculated at one and one-half times their regular rate(s) of pay.
Due to the way in which the agreement containing the non-compete provision was drafted, we decided to file a federal lawsuit against the company for violating the Fair Labor Standards Act (FLSA) by not paying my clients the overtime wages they earned. Establishing that my clients earned money that that they were not paid, in the context of the language of the agreement at issue, would provide my clients with a complete defense to the non-compete agreement. The reason is that unless the agreement is carefully worded, the failure to pay any money to the employee amounts to a first breach of the contract by the employer and allows the employee to get out from under the rest of the contract.
After discovery, my clients were able to demonstrate that they had been employees of the company and not independent contractors (not misclassified), and that they worked more than 40 hours per week without getting paid overtime wages. My clients were then not only able to recover their overtime wages, but the company actually paid my clients’ attorneys’ fees for – essentially – successfully defending the non-compete agreement.
My clients were ecstatic; they were able to get out of their non-compete agreement, and the company paid for their attorneys’ fees.
This tactic, however, does not always work.
I also recently defended a company who had entered into a non-compete agreement with its employee as part of her employment agreement (yes, she had an employment agreement). The company sued the employee in Miami-Dade Circuit Court to enforce the non-compete provision contained in her employment agreement. The employee raised defenses to enforcing the non-compete agreement, including that she was owed overtime wages. The employee then sued my client in a separate lawsuit in federal court, claiming that she was owed overtime wages for working more than 40 hours in a workweek in violation of the FLSA.
My client did not have records of the times that the former employee clocked in and out of work, but my client was able to establish the dates and times that his business was open through his alarm records. These records, in conjunction with the pay records establishing that my client had actually paid overtime wages to the former employee, convinced the former employee to dismiss her lawsuit. Due to the passage of time time, the dismissed the federal lawsuit cannot be re-filed, meaning that my client won the FLSA case. If you ask anyone around, they’ll tell you how hard it is to convince a lawyer to dismiss a lawsuit for overtime wages without getting paid a penny.