Employment And Separation Agreements

Employment Relationships Under Florida Law

Under Florida law, the employer-employee relationship is covered by the employment-at-will doctrine, which means that the relationship exists as long as it is the will of the parties. Under this doctrine, an employee may be terminated for any reason or no reason. The employer does not need to justify the reason and need not even articulate the reason. No written justification for the employment decision needs to be given to the employee.

Employment agreements

The employment-at-will doctrine can be voided for an employee and employer who enter into an agreement that provides for the nonapplication of the doctrine. Not all employment agreements eliminate the doctrine. The agreement must specifically state that the employment relationship is not at-will.

Employment agreements usually provide for specific terms and conditions of employment, such as:

  • Term or duration
  • Specific amount of pay
  • Responsibilities and obligations of the employee

With respect to termination, employment agreements generally provide that the employee can be terminated prior to the end of the term only for "good cause" or "just cause," both of which are usually defined in the agreement. Employment agreements also generally provide for a specific notice of termination (for example, 30 days) and a minimum severance pay for a termination prior to the expiration of the term.

Employment agreements may also provide for confidentiality and nondisclosure obligations, nonsolicitation obligations and noncompete provisions:

  • Confidentiality and nondisclosure provisions -- These protect the business interests of the employer and generally provide that the employee may not use or disclose sensitive or confidential employer information, such as client contacts, intellectual property, and processes and methods.
  • Nonsolicitation provisions -- These provisions generally provide that the employee may not contact clients or customers of the employer after termination of the employment relationship.
  • Noncompete provisions -- These generally provide that the employee may not compete with the employer after termination of the employment relationship. Under Florida law, noncompete agreements extending beyond more than two years are presumed unreasonable.

Employment agreements are usually used in tight labor markets where employers compete for talent and where the employee possesses a specific technical proficiency that is valuable to the employer. For example, top executives, stock brokers, physicians, marketing specialists and computer analysts often enter into employment agreements. However, any employee may enter into an employment agreement with an employer.

Employers or employees considering using an employment agreement should hire an experienced employment lawyer to draft or review the agreement to ensure that the agreement protects their interests.

Separation agreements

Separation or termination agreements usually provide for the payment of a severance amount, a release of liability with respect to actions of the employer, and confidentiality and nondisclosure obligations with which the employee must comply. These agreements may also provide for continued obligations on the part of the employer, such as the payment of health insurance for a certain period of time after termination.

It is good practice for both the employee and employer to sign a separation agreement when the employment relationship terminates. The employee receives a severance payment that enables the person to pay living expenses while attempting to find other employment. The employer receives assurance that there is no contingent liability with respect to the employment of the employee. In short, it provides a clear understanding of the position of both parties.

Noncompete Agreements (NCAs)

In many industries, employers require employees to sign NCAs limiting an employee's ability to work for a competitor and to solicit customers. The NCA is a separate document from the employment agreement. NCAs generally provide that an employee cannot compete with the employer (for example, sell the same or similar goods and services) and cannot solicit clients of the employer for a certain period of time after the termination of the employment relationship.

Generally, a company should use an NCA if:

  • It is in a highly competitive industry or market
  • Its products or services incorporate patents or other intellectual property unique to the company
  • The company's internal processes -- such as those the company uses for manufacturing, new product development or customer acquisition -- are proprietary

By limiting the ability of an employee to quit and immediately bring proprietary knowledge or customers, or both, to a competitor, a properly drafted NCA helps a company maintain its competitive edge.

Under Florida law, NCAs are fully enforceable provided that they meet certain requirements. To be enforceable, the employer must demonstrate that the need for the agreement is supported by legitimate business interests.

Protections provided by noncompete agreements (NCAs)

Noncompete agreements are meant to protect the confidential and proprietary business interests of the employer. If the employer cannot show a legitimate business interest that it seeks to protect, then courts may not enforce it. Legitimate business interests include trade secrets, confidential information, substantial relationships with customers and specialized training provided by the employer.

The restrictions contained in an NCA must also be reasonable to be enforceable, both with respect to the time period of the restriction and the geographical area of the restriction. Under Florida law, any noncompete provision extending beyond two years is presumed unreasonable. Also, if the employer does business only locally, a restriction prohibiting the employee from competing on an international level would be unreasonable.

If an ex-employee violates a signed NCA, the employer can bring a lawsuit against the ex-employee and possibly the person's new employer. The ex-employer may also be able to obtain a cease-and-desist order. Many NCAs contain a section documenting the sanctions or actions an employer can bring against a violator.

Independent Contractors

Mr. Padilla has extensive experience and knowledge regarding independent contractor issues. Whether a person is an independent contractor or an employee can have significant ramifications for a business.

For example, only employees are protected by the Fair Labor Standards Act (requiring the payment of minimum wage and overtime) and employment discrimination laws. Also, employers must pay employment taxes for employees, but not for independent contractors. The firm's Miami attorneys advise business owners, investors and individuals on independent contractor law.

Independent contractor or employee?

Determining whether an individual is an independent contractor or an employee requires a complex analysis and is not based on whether the individual signed an agreement or received a Form 1099-Misc. Under the law, the status of employee cannot be waived by signing a contract stating that the person is an independent contractor. Thus, the fact that a contract may state that a person is an independent contractor is not controlling under employment law.

The courts have generally stated that the employer-employee relationship is tested by "economic reality" and not by applying technical concepts. There is no single test for determining whether an individual is an employee or an independent contractor. The facts and circumstances of each case must be carefully examined.

Independent contractor rights and obligations

An independent contractor does not have the same rights and duties as an employee. For example, an independent contractor often has the right to choose where and when to perform the work (unless the contractor has agreed to specific locations and times required by the business). An employee must be at work where and when the employer requires.

Of course, an independent contractor is obligated to perform the work to the standards and schedule set by the business. Independent contractors, unlike employees, must pay their own taxes.

Court rulings on relevant factors

The Supreme Court has explained that courts must determine whether, as a matter of economic reality, an individual is an employee or an independent contractor. For example, in the case of Rutherford Food Corp. v. McComb, 331 U.S. 722, 728, 67 S.C. 1473, 91 L.Ed. 1772 (1947), among the factors the courts considered significant are:

  • The permanency of the relationship
  • The nature and degree of control exercised by the principal
  • Whether the services rendered are an important part of the principal's business
  • The amount of investment in equipment and facilities made by the alleged contractor
  • Whether the alleged contractor provides services to other principals
  • Whether the alleged contractor can dictate the manner and method of providing the services

No single factor is determinative, and courts must ultimately decide the degree of dependence of the alleged employees on the businesses with which they are connected. The determination of employee status is a question of law and fact.

Does it matter who pays the wages?

It is immaterial who pays the individual, such as in the case of an individual paid by a payroll company or a staffing company. Florida courts have reiterated time and again that what matters is the substance of the relationship, not the form of the relationship as may be indicated by documents signed by the parties (for example, independent contractor agreements).

Interested employers and employees may contact Santiago J. Padilla and his team of legal professionals via their online contact form. Prospective clients may also call 800-483-7197 to schedule a consultation regarding their legal needs and questions about commercial litigation.