Archive for the 'Featured Article' Category
This article appeared in the October issue of Dixie Contractor
By Peter C. Vilmos
When you live in Florida, you tend to hear that expression for far too many months of the year. Even during the winter, weather reports often include information on the “sun index” indicating the level of sunscreen you might need in order to survive your next trip to the local grocery store. Visitors from the southwest, where temperatures in July reached over 100 degrees, are quick to inform Floridians that it’s hot in Phoenix, “but it’s a dry heat.”
Well, if you’re looking for things other than the weather to make you sweat, you might take a look at your company’s policy on whether or not a departing employee can go to work for a competitor. Presumably, your direct competitor will now reap the benefit of the many hours and significant financial commitment your business expended. And as a business owner, you might ask: “What can I do?” In many circumstances, your best business move is to protect your businesses’ interests with a carefully crafted non-competition agreement.
The rules for non-competition agreements vary from state to state. Some states basically do not allow them (or greatly disfavor them). Other states have no legislation concerning non-competition agreements, choosing instead to allow the legal system to define the issue on a case-by-case basis. Indiana, for instance, recently allowed a five-year non-competition agreement, concluding that both the length of time (five years), and the restriction (a two county area) were reasonable. See Mayne v. O’Bannon Publishing Co. d/b/a Corydon Instant Press. In Florida, the legislature has created a statute that specifically defines the basic structure of contracts that Florida law allows to validly restrain trade. Key among the allowed restraints of trade are non-competition agreements and limitations on the use of a company’s trade secrets after an employee leaves the company.
Although defined in the statutes, Florida law also requires that the courts interpret non-competition agreements in favor of the employee in those circumstances when the agreement is vague or missing terms. Even when parties are careful to define terms in a non-competition agreement, the contract cannot confine future employment beyond the statutory guidelines, nor are non-competition agreements immune from legal challenges regarding their breadth, their validity, or their applicability to particular circumstances.
In the real world, employees leave for new positions every day. They pursue opportunities at other companies. They perceive opportunities to start companies of their own. They move on. Nonetheless, thoughtfully crafted non-competition agreements can significantly help a business retain key employees, or – at the very least – make it far more difficult for departing employees to immediately join a competitor or start a competing business. As in most contracts, the more specific the limitation (and the more reasonable the limitation relative to the possible damage a departing employee might cause your business), the more likely a court will uphold the contract. If, for instance, your business is confined to a particular county, then restricting a departing employee from working in an entirely different State makes little sense. After all, how would that departure negatively impact your business? So take care to have your attorney tailor your non-competition agreement in a manner that reflects your business and that provides you the protection you deserve for those inevitable situations when an employee critical to your bottom line decides to see if the grass is greener elsewhere.
Which takes us back to the heat and the humidity. While it’s tough to argue that the humidity can turn your Florida summer from a sauna to a steam bath, it’s also tough to deny that – if nothing else – the rain and the humidity do an excellent job of keeping our lawns green year-round. If keeping critical employees around makes sense to the financial health of your company, consider hiring an attorney familiar with drafting non-competition agreements. Under certain circumstances, it could literally save your business.
Peter C. Vilmos is a partner at Burr & Forman LLP.
This article appeared in the August 2013 of Dixie Contractor
By Zack Rippeon
A common provision in many construction contracts involves the parties’ election to resolve disputes (should they arise, of course) in a particular geographic location or with a specific state’s law. These “choice of forum” and “choice of law” clauses are typically enforceable as courts are reluctant to interfere with the parties’ explicit agreements. However, some states have enacted laws prohibiting outbound choice of forum or choice of law provisions – that is, those providing for the venue of any dispute resolution to be outside the home state or for a law other than the home state’s to govern. Tennessee Code Annotated 66-11-208, for example, precludes parties to a construction contract to apply any state’s law other than Tennessee or to elect another state as the forum for their dispute resolution.
Imagine the situation where a Florida general contractor is building a project in Memphis, Tennessee, and hires an Alabama subcontractor. The parties agree that Florida law governs their agreement and select Destin, Florida, as the venue for any dispute that may arise. The Alabama subcontractor obtains materials from a Tennessee supplier, which are later alleged to be defective. The Florida general contractor files a lawsuit against the Alabama subcontractor in Destin under Florida law. The Alabama subcontractor files a third-party claim against its Tennessee supplier in that same lawsuit. Tennessee law could be interpreted to allow that Tennessee supplier to drag everyone from Destin, Florida, to Memphis, Tennessee, to resolve the claims and force Tennessee law to apply to the dispute.
While such an example is not likely to exist in such a simple form, contractors should be sure to investigate the applicability of local laws when performing work out of state. A “foreign” contractor working in Tennessee will likely hire Tennessee subcontractors and find itself in a similar predicament if/when a dispute arises. It should be noted that the Tennessee law appears to have originally been intended to protect Tennessee residents dealing with out-of-state residential builders. It was, however, drafted broad enough to encompass commercial projects as well.
One potential caveat to the application of such legal prohibitions on outbound forum selection clauses involves arbitrations. There is a wealth of law on the Federal Arbitration Act’s (FAA) preemption of conflicting state law in constraining parties’ ability to arbitrate their dispute. FAA preemption has been raised in cases dealing with laws similar to Tennessee’s, particularly when a particular locale is identified within the parties’ arbitration provision. In such cases, any attempt by a state law to limit the parties’ arbitration agreement, including where the arbitration is to occur, can be viewed as conflicting with the FAA’s intent to promote alternative dispute resolution. A similar argument could be made if the parties include a choice of law within their agreement to arbitrate.
In conclusion, it is recommended to carefully craft the independent arbitration agreement within the contract documents in order to ensure that the parties’ wishes are enforceable in states with prohibitions on outbound selection.
Zack Rippeon is an attorney in the Atlanta office of Burr & Forman LLP.