Saturday, March 03, 2007

LOANS AND GUARANTEES AS VIOLATIONS OF NONCOMPETE COVENANTS (FLORIDA)

Noncompete covenants are regular features of sales of businesses and employment situations. Generally, the covenants restrict the seller of the business or a employee or former employee from competing with a business for a fixed period of time in a specific geographic area.

John A. Nobile sold his hearing aid business to H & M Hearing Associates, LLC, and entered into a noncompete covenant. The covenant provided that Nobile shall not directly or indirectly be actively engaged in the business of sales or service of hearing aids except as an employee of H & M. Further, the agreement provided that Nobile shall not "[o]wn, manage, control, operate, direct, join or participate in the ownership, management, operation, or control of any business which engages in the sales or service of hearing aids" in Lee County, Florida.

Instead of opening up a competing business, Nobile lent funds to a former employee of H & M who opened up a competing business. Nobile further guaranteed the credit of the new company, allowing it to purchase inventory and operate its business.

Was this activity enough to violate the restrictive covenant? The appellate court, in reviewing whether an injunction should be issued against Nobile, thought that it could be, and remanded the case back to the trial court to make that determination.

Therefore, while the case does not definitively establish whether such loan activities constitute a violation of a general noncompete provision, it does warn that this is an issue that is not clear on its face. Employers looking to avoid all such competitive activities should learn from this case to be explicit in their agreements prohibiting such loan and guaranty activity so as to assure that such activity is prohibited in lieu of relying on more typical general noncompetive activity language. Such specific prohibitory language is often not included in noncompete agreements.

H & M HEARING ASSOCIATES, LLC, Appellant, v. JOHN A. NOBILE and DEBORAH LEASURE d/b/a CLARITY HEARING CENTER, Appellees. 2nd District. Case No. 2D06-2184. Opinion filed March 2, 2007.

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