A prevalent issue in non-compete litigation is whether a company’s non-compete agreement is enforceable to protect its substantial business relationships. These business relationships must be specific and identifiable, but they are not required to be contractual in nature. Indeed, prospective substantial business relationships are protected if they fit these requirements. A business’ substantial business relationships qualify as a protectable “legitimate business interest” under Florida’s non-compete statute, Section 542.335. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
“Section 542.335(1), Florida Statutes, permits enforcement of contracts that restrict or prohibit competition, but only ‘so long as such contracts are reasonable in time, area, and line of business….’” Envtl. Servs., Inc. v. Carter, 9 So. 3d 1258 (Fla. 5th DCA 2009). This section also requires “that the restrictive covenant be set forth in a writing signed by the person against whom enforcement is sought, and that the restraint be shown to be reasonably necessary to protect the ‘legitimate business interests’ justifying the restriction.” Henao v. Prof’l Shoe Repair, Inc., 929 So. 2d 723 (Fla. 5th DCA 2006).
“[L]egitimate business interest[s]” include “[s]ubstantial relationships with specific prospective or existing customers . . . or clients.” Accordingly, “‘the right to prohibit the direct solicitation of existing customers’ is a legitimate business interest.” Hilb Rogal & Hobbs of Fla., Inc. v. Grimmel, 48 So. 3d 957 (Fla. 4th DCA 2010). However, “the protection of former customers generally does not qualify as a legitimate business interest where no identifiable agreement exists with such customers establishing that they would return with future work.” Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So. 2d 812 (Fla. 1994). Moreover, an employer business is not able to protect against ordinary competition, and such covenants designed solely for those purposes are not enforceable. PartyLite Gifts, Inc. v. MacMillan, 895 F. Supp. 2d 1213 (M.D. Fla. 2012).
A business’ customer relationships are protected as legitimate business interests under Section 542.335, Florida Statutes, because such relationships are often the lifeblood of a business. “As with many sales positions, regardless of the industry, forming relationships with prospective and existing customers is invaluable and often vital for success.” Allied Universal Corp. v. Given, 223 So. 3d 1040 (Fla. 3d DCA 2017). This is one example of why “the harm presumed under the statute includes the potential damages to [the plaintiff’s] longstanding relationships with its customers and the protection of confidential client information.” Variable Annuity Life Ins. Co. v. Hausinger, 927 So. 2d 243 (Fla. 2d DCA 2006).
To enforce a business’ restrictive covenants, its prospective and existing customer relationships of a business must be identifiable and specific. Under Florida law, a business cannot demonstrate it has substantial relationship with prospective customers if those prospective customers are merely unidentified members of the general public or a nonspecific segment of a market. Prospective and existing customer relationships do not, however, need to be based on an executed contract. For example, in Reliance Wholesale, Inc. v. Godfrey, Florida’s Third District Court of Appeal held a non-compete agreement was enforceable to protect a business’ substantial business relationships based on “relationships established at [the business’] expense.” 51 So. 3d 561 (Fla. 3d DCA 2010). Reliance held that that a business had substantial business relationships because it “attended several tradeshows where [it] would go to meet and greet customers and potential customers, so as to establish personal relationships for business purposes.” Reliance Wholesale, Inc. v. Godfrey, 51 So. 3d 561 (Fla. 3d DCA 2010). Reliance further found that, “through these relationships established at [the business’] expense, [the former employee] was able to take customers with her to” a competing company. Reliance further noted that a critical factor in establishing these “substantial business relationships” was that the business itself expended funds to acquire targeted customers that later went to competitors.
By contrast, a business may not enforce a non-compete to protect relationships with former customers if the business does not have any expectation or identifiable prospect of future business with such customers. In Evans v. Generic Solution Engineering, LLC, Florida’s Fifth District Court of Appeal noted that “the protection of former customers generally does not qualify as a legitimate business interest where no identifiable agreement exists with such customers establishing that they would return with future work.” 178 So. 3d 114 (Fla. 5th DCA 2015).
Peter Mavrick is a Fort Lauderdale non-compete lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.