The$20,000,000 Non-Compete.

 In Raising Capital

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.

Recently, we learned the story of the Twenty Million Dollar Non-Compete. It’s about how a non-compete can achieve incredible feats and protect your business from rogue employees.

You may recall that in an article called Four Agreements That Can Make or Break Your Business, I suggested having an employment agreement with all key employees that included, 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.

One business that is built on customer relationships and industry 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, 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, it is a shockingly large sum for a settlement payment in a non-compete case.

Plus, had there been no 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:

1.) 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.

2.) Each key employee should have an employment agreement that contains properly written restrictive covenants.

3.) 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.

4.) 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.

5.) 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.

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.

Let me know if you have any questions about employment agreements. I’d be happy to talk with you about them.

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