The Effect of Remote Work on Non-Compete Agreements
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As a result of the COVID-19 pandemic, many Florida companies have continued to embrace remote work. This new era of remote work comes with a lot of perks for employees, but also employers, by opening up the pool of potential new employees to those who live in entirely different cities, states, and even countries. However, if a company is planning to hire an employee who will be working in an entirely different state or country, the company should be mindful of the impact remote work has on the enforceability of its non-compete agreement.
Enforcement of Non-Compete Agreements Generally
Under Florida law, non-compete agreements are enforceable so long as they are “reasonable in time, area, and line of business.” Fla. Stat. § 542.335(1). The time period, as well as the restricted or geographic area, are almost always defined in the non-compete agreement.
In addition, the non-compete agreement must be reasonably necessary to protect a legitimate business interest. Fla. Stat. § 542.335(1)(a). A “legitimate business interest” includes, but is not limited to, the following:
- Trade secrets;
- Valuable confidential business or professional information that otherwise does not qualify as trade secrets;
- Substantial relationships with specific prospective or existing customers, patients, or clients;
- Customer, patient, or client goodwill associated with:
- An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”;
- A specific geographic location; or
- A specific marketing or trade area; and
- Extraordinary or specialized training.
Fla. Stat. § 542.335(1)(b).
Remote Work and Non-Compete Agreements
However, in this new era of remote work, many Florida employers may not have considered the impact remote work may have on the enforceability of its non-compete agreements or the impact on the geographic or restricted area. For example, if a former employee is subject to a non-compete agreement that defines the geographic or restricted area as Jacksonville, Florida, and that former employee lives in Jacksonville, Florida, but is working remotely for a competitor in Orlando, Florida, is that employee violating the non-compete agreement?
Although case law on this issue is sparse, courts have found that a former employee does not violate a non-compete if he or she works remotely outside the restricted area, while being physically present within the restricted area. See, e.g., United HealthCare Servs., Inc. v. Corzine, No. 2:21-CV-319, 2021 WL 961217, at *20 (S.D. Ohio Mar. 15, 2021) (holding that the former employee is enjoined from working for Humana in the Ohio market, but is permitted to work remotely for Humana in another state’s market from his home in Ohio); Capsicum Grp., LLC v. Rosenthal, No. 2:13-CV-05322-WY, 2013 WL 6667822, at *10-11 (E.D. Pa. Dec. 17, 2013) (holding that former employees will not violate the non-compete by being physically present within the restrictive area, if they work remotely outside the restricted area).
For example, in Rosenthal, the defendants were employed as computer forensic consultants. Id. *5. The defendants signed a non-compete agreement, which restricted competition within a 250-mile radius of any of the plaintiff’s offices. Id. The defendants began working remotely for a competing business that was headquartered outside the restricted area, while being physically present within the restricted area. Id. The court held that the defendants were enjoined from dealing with the plaintiff’s current and former customers within the restricted area, however, the defendants were able to work remotely outside the restricted area. Id. Notably, the court stated, “[i]n their highly technological field which permits substantial work to be done remotely, this geographic restriction may not prove much of a limitation at all, as evidenced by the substantial amount of work that they will be able to do for [the new employer] from their current home regions in the restricted zone.” Id. at *12.
Similarly, a former employee will likely be found to be violating a non-compete agreement if he or she works remotely within the restricted area, while being physically present outside the restricted area.
Accordingly, employers should be mindful that, even though a former employee may be physically present within the restricted area, that former employee may not be violating the non-compete agreement if he or she is working remotely for a competitor outside the restricted area. If preventing this type of behavior is necessary to protect a legitimate business interest, the company should consider revising their non-compete agreements.
The Enforceability of Non-Competes Vary from State to State
Employers should also consider what state’s law may apply to their non-compete agreements with their remote employees. Most non-compete agreements contain a choice of law clause (i.e., an agreement that a particular state’s law applies), however, it is possible for a court to ignore the choice of law clause and find that another state’s laws, such as the law where the remote employee lives, should apply instead. See, e.g., Medtronic, Inc. v. Walland, 2021 U.S. Dist. LEXIS 172235 (S.D.N.Y. Sep. 10, 2021) (holding that, although the non-compete agreement stated it was governed by New York law, California law applied because the employee negotiated and executed the contract in California, and currently resided in California).
This may be problematic to the enforcement of non-compete agreement in some cases because some states, such as California, North Dakota, and the District of Columbia, banned the enforceability of non-compete agreements entirely; while other states, like Colorado, Maine, Illinois, and Massachusetts, severally limit the enforceability of non-compete agreements.
Remote work is likely here to stay. Employers that are continuing to embrace remote work should consider revising their non-compete agreements, to ensure their non-compete agreements comply with the state laws that may apply to their remote employees, and to ensure they adequately protect their legitimate business interests.