Restrictive covenants such as non-compete and non-solicitation provisions are common tools to help protect trade secrets. Recently, a judge at the U.S. District Court for the Middle District of Florida recognized that an employer's demand letters seeking to enforce non-compete and non-solicitation provisions of an employment agreement may support a lawsuit challenging the validity of those provisions. Cox & LTC Power Sols., LLC v. Sunbelt Rentals, Inc., Case No. 2:24-cv-1047-JES-KCD, 2025 WL 833232 (M.D. Fla. March 17, 2025). In Cox, via the action filed Nov. 13, 2024, Brian Cox (Cox) and his new employer, LTC Power Solutions LLC (together, the Plaintiffs) sued Cox's former employer, Sunbelt Rentals Inc. (Sunbelt) for declaratory relief requesting a determination that the Plaintiffs' restrictive covenants in contracts with Sunbelt were invalid.
Declaratory relief is a nonmonetary claim where a party seeks to clarify the legal rights, status or obligations under a contract without claiming a breach or seeking damages. To assert this claim, there must be a "justiciable controversy." In other words, a party cannot simply seek a legal opinion from the court.
Sunbelt moved to dismiss, arguing, in part, that the Plaintiffs lacked standing (i.e., there was no justiciable controversy). In denying Sunbelt's motion to dismiss, Judge John E. Steele highlighted the fact that Sunbelt previously sent the former employee two demand letters where Sunbelt invoked the non-compete and non-solicitation provisions at issue. In those demand letters, Sunbelt warned that it "intends to take all necessary and legal actions to protect its rights, up to and including filing a lawsuit." The court also recognized that on Oct. 3, 2024, Sunbelt sued the Plaintiffs in state court (before the Plaintiffs initiated this federal court action) for breach of the non-compete and non-solicitation provisions. Both actions (sending demand letters and filing suit) were considerations for the court in determining a justiciable controversy existed.1
The judge rejected Sunbelt's argument that the demand letters were merely "an invitation to discuss Plaintiffs' actions and obligations – not a threat of imminent litigation." Unpersuaded by this argument, the judge held that there was a "justiciable controversy regarding Plaintiffs' and [Sunbelt's] rights under the various restrictive covenants at issue."
This opinion and order may act as a warning to employers who are considering enforcement of restrictive covenants against former employees. Though some employers may send a demand or notice letter to reserve their rights under restrictive covenants or protect their trade secrets, even if they do not plan to file suit, this opinion and order serves as a reminder that such correspondence may allow an employee to file a lawsuit challenging enforceability and potentially seek prevailing party attorneys' fees if permitted under the agreement or pursuant to statute (some states have statutes permitting prevailing party attorneys' fees in restrictive covenant matters even without a contractual provision). Depending on the circumstances of an employee's departure, this practice may place the employer in a defensive, rather than offensive, position.
Footnotes
1. Procedurally, the court also permitted the Plaintiffs or the parties to move to consolidate the state court and federal court proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
