Burzee v. Park Avenue Insurance Agency, Inc.
2006 WL 3813611, 2006 Fla. App. LEXIS 21772, 946 So.2d 1200 (2006)
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Rule of Law:
A contractual provision stipulating damages for a breach is an unenforceable penalty, rather than a valid liquidated damages clause, if the specified amount is grossly disproportionate to any damages that could reasonably be expected to result from the breach.
Facts:
- Jane Marie Burzee and Park Avenue Insurance Agency, Inc. entered into an oral employment contract and a separate written covenant-not-to-compete agreement.
- The agreement prohibited Burzee from soliciting Park Avenue's customers for a period of two years after leaving the company's employ.
- The agreement stipulated that in the event of a breach, Burzee would be liable for damages equal to $10,000 plus the entire commissions earned by Park Avenue on all accounts sold or serviced by Burzee during the 24 months prior to her termination.
- Park Avenue terminated Burzee's employment in 2002.
- Shortly after her termination, Burzee began working for a competing insurance agency.
Procedural Posture:
- Park Avenue Insurance Agency, Inc. sued Jane Marie Burzee in a Florida trial court for breach of a non-compete agreement.
- The trial court issued an injunction against Burzee and later found her in civil contempt for violating it.
- On Park Avenue's motion, the trial court entered a Final Judgment on Damages, finding Burzee had violated the non-compete agreement.
- The trial court awarded Park Avenue $161,572.88 in damages, calculated according to the formula in the agreement.
- Burzee, as appellant, appealed the final judgment on damages and the contempt finding to the District Court of Appeal of Florida, Fifth District; Park Avenue is the appellee.
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Issue:
Does a damages provision in a non-compete agreement, which requires a former employee to pay the employer's entire gross commissions from all accounts the employee serviced for the prior two years plus a flat fee, constitute an unenforceable penalty rather than a valid liquidated damages clause?
Opinions:
Majority - Monaco, J.
Yes. A damages provision that is grossly disproportionate to any reasonably expected damages from a breach constitutes an unenforceable penalty intended to compel performance rather than liquidate damages. The court reasoned that the clause at issue bears virtually no relationship to the actual loss Park Avenue might suffer from a breach. The formula requires Burzee to pay the company's gross commissions from every account she serviced for two years—undiminished by her own share or other expenses—regardless of whether any of those clients actually left Park Avenue for her new employer. The court found the lack of proportionality to be patent, as the damage calculation is identical whether the breach involves one client or one hundred. Applying the test from Lefemine v. Baron, the court concluded that while damages may have been difficult to ascertain at the time of contracting, the stipulated sum is so disproportionate that it can only be viewed as a penalty held in terrorem over the employee.
Analysis:
This decision reinforces the critical distinction between enforceable liquidated damages and unenforceable penalties within employment non-compete agreements. It clarifies that a damages formula, even if purportedly for hard-to-calculate losses, must still bear a reasonable relationship to the potential harm. The court's rejection of a formula based on gross revenue, untethered to actual client defection, establishes a strong precedent against punitive clauses that serve to deter competition rather than compensate for actual business losses. This holding instructs drafters of such agreements that courts will scrutinize these clauses for proportionality and strike them down if they appear designed to punish rather than to make the employer whole.
