EMPLOYMENT LAW: Florida Court Treats Independent Contractor as Employee for Purposes of Enforcing Covenant Not to Compete

Tuesday, April 23, 2013

The author of this is article is Charlene Hicks, a legal research attorney with National Legal Research Group in Charlottesville, Virginia.

One of the legal arenas in which individual rights are pitted directly against business interests comes into play when an individual employee signs an employment contract containing a covenant not to compete.  Not surprisingly, state courts are often called upon to referee disputes concerning the enforceability of such contracts.  In a recent proemployer decision, a Florida appellate court ruled that an individual's change in status from an "employee" to an "independent contractor" did not affect the terms of the noncompete agreement that the individual had previously signed.

In Anarkali Boutique, Inc. v. Ortiz, 104 So. 3d 1202 (Fla. Dist. Ct. App. 2012), the Anarkali Boutique ("Boutique") sought a temporary injunction against Nahomi Ortiz for violating a noncompete agreement that Ortiz had signed when she began employment in 2008.  This agreement stated, in relevant part:

In consideration for my at-will employment or continued at-will employment by [the company] and the compensation now and hereafter paid to me, I hereby agree as follows:

  . . . .

I will not either during my employment with the Company or for a period of two (2) years after I am no longer employed by the Company, engage, as an employee, independent contractor, officer, director, or shareholder, in any employment, business, or activity that in any way competes with the business of the Company within a one-hundred (100) mile radius of any store, office, or facility of the Company. . . .

  . . . .

Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.

Id. at 1203.

In 2009, the Boutique began treating Ortiz as an independent contractor so that she would have the opportunity to earn more money through sales commissions.  In 2011, Ortiz left the Boutique and began operating her own business, performing the same services, within the restricted area.  In response, the Boutique filed a complaint for injunctive relief and a motion for temporary injunction against Ortiz.

As a defense against the motion, Ortiz argued that when the Boutique changed her status from employee to independent contractor in 2009, she ceased to be employed by the Boutique and the two-year restricted period set forth in the covenant not to compete began to run at that time.  The trial court agreed with Ortiz and denied the Boutique's motion for temporary injunction.

On appeal, the appellate court reversed.  In so doing, the appeals court relied upon the principle of contract construction that requires a court to examine the contract as a whole and to attempt to give effect to every provision.  According to the appeals court, the trial court contravened this principle by failing to give effect to the final sentence of the noncompete agreement quoted above.

Under the circumstances, the Boutique's change of Ortiz's status from employee to independent contractor had the practical effect of changing her "duties, salary or compensation" in the manner contemplated by this final sentence.  Id. at 1205.  In order to give effect to this sentence of the contract, the appeals court ruled that the "mere changing of the worker's status from an employee to an independent contractor did not cause the two-year non-compete period to begin running.  Instead, the two-year non-compete provision did not begin running until the worker left the company."  Id.

Ultimately, the appeals court remanded the case back to the trial court to determine whether the Boutique had satisfied its burden of establishing the statutory requirements for the issuance of a temporary injunction.  Even so, the decision represents a clear victory for the Boutique as an employer.  Although the law carefully differentiates between an "employee" and an "independent contractor" in other contexts, the court did not allow such distinctions to subvert the contractually agreed-upon covenant not to compete.  Because the covenant not to compete by nature favors the employer's business interests over the employee's right to pursue his or her livelihood, the decision indicates that Florida courts may tend to weigh the balance of interests in favor of the employer in any close case.


Additional Comment from George F. Indest III, J.D., M.P.A., LL.M., Board Certified by The Florida Bar in Health Law, President and Managing Partner, The Health Law Firm

We often receive inquiries from physicians, medical groups and other health providers regarding whether or not restrictive covenants (“noncompetition agreements” or “covenants not to compete”) are enforceable against a former employee who is a physician or other health professional. The short answer is that every case is different. Every case is decided base on the facts of that case.

You can never be certain as an employer or an employee whether or not the restrictive covenant will be enforced.

Physicians and other licensed health professionals will often have defenses against the enforcement of a restrictive covenant. These may include the fact that the employee is in a medically underserved area (MUA) or a health care professional shortage area (HPSA). These may include that the employee is not practicing in the same medical specialty as the employer. There are many other defenses that may be available in a medical-related case.

The key to success in such cases is to plan ahead. Consult with an experienced health law attorney as early as possible. Review the statutes and cases on restrictive covenants and have your witnesses lined up as early as possible. Good expert witnesses can be the key to success in litigation.


About the Author: The author of this is article is Charlene Hicks, a legal research attorney with National Legal Research Group in Charlottesville, Virginia. This case summary originally appeared on The Lawletter Blog.

 

This article was originally published in The Lawletter Vol 38, No. 1.


Tag Words: employment contract, covenant not to compete, noncompete agreement, enforceability of contracts, employee, independent contractor, at-will employment, physician, doctor, medical group, health providers, restrictive covenant, medically undersereved area (MUA), health care professional shortage area (HPSA), physician employment agreement, physician employment contract, health professional contracting, negotiating business transactions, physician contracts, contracting tips, contract attorney, business law attorney, business lawyer, contract lawyer, contract litigation, business litigation, contract terms, physician agreements, business transactions, business ventures, Florida health lawyer, Florida health law attorney, health attorney, health lawyer




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4/23/2013

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