Businesses can use non-compete agreements to protect their substantial business relationships with prospective and current customers, patients, or clients. A common issue in business litigation seeking to enforce non-compete agreements is whether the business sufficiently demonstrates that it has substantial business relationships to protect. Such business relationships are typically based on the contractual agreements between the business and customer. However, a business can establish a “prospective” substantial relationship when the customers are specific and identifiable. Peter Mavrick is a Miami business litigation attorney, and represents clients in business litigation in Fort Lauderdale, 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.
To “enforce restrictive covenants under Florida law, a plaintiff must plead and prove the existence of one or more legitimate business interests justifying a restrictive covenant; generally, a legitimate business interest takes the form of confidential information, substantial customer relationships, or extraordinary training and education, and a restrictive covenant may be no broader than is necessary to protect the legitimate business interest at issue.” Lucky Cousins Trucking, Inc. v. QC Energy Resources Texas, LLC, 223 F. Supp. 3d 1221 (M.D. Fla. 2016). Under Florida law, “to have protectable interest in specific prospective or existing customer relationships, employer seeking to enforce restrictive covenant in employment agreement need not prove that its former employee himself had a substantial relationship with any particular customer; proper inquiry focuses on relationship between employer and its prospective and existing customers.” Milner Voice and Data, Inc. v. Tassy, 377 F. Supp. 2d 1209 (S.D. Fla. 2005).
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. Indeed, “[a]s 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 non-compete agreement, the prospective and existing customer relationships 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 found 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.
Indeed, a “covenant not to compete . . . is breached when a former employee directly solicits customers of his former employer.” Dyer v. Pioneer Concepts, Inc., 667 So. 2d 961 (Fla. 2d DCA 1996). However, 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. For example, 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 Miami business litigation lawyer, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.