Florida Non-Compete Clauses and Legitimate Business Interests: Customer Relationships and Goodwill

The use of non-compete covenants by employers to protect business interests is not an uncommon practice. The validity of these covenants is governed by Florida Statute 542.335, which requires: “the employer to plead and prove (1) the existence of one or more legitimate business interests justifying the restrictive covenant and (2) that the contractually specified restraint is reasonably necessary to protect the established interests of the employer.” North American Products Corp. v. Moore, 196 F.Supp.2d 1217, 1228 (M.D. Fla. 2002). Additionally, if the employer establishes it has a “legitimate business interest” to protect, irreparable injuries will be presumed and it will be up to the employee to prove the absence of injuries. A “legitimate business interest” includes, but is not limited to: valuable confidential business information, specific relationships with prospective or existing customers, and customer goodwill associated with a specific geographical area. Fla. Stat. 542.335 (1)(b). Peter Mavrick is a Palm Beach non-compete attorney who has extensive experience dealing with non-compete agreements.

It is not always clear when customer goodwill and specific relationships with customers are considered legitimate business interests. However, the United States District Court for the Middle District Florida helped clarify this issue in North American Products Corp. (“NAPCO”). NAPCO, a tool manufacturing, selling, and distributing business, filed with the court a motion for a preliminary injunction against a former employee (“Moore”) to enjoin him from soliciting business directly or indirectly from NAPCO customers for 1 year after Moore’s employment ended. Moore was employed with NAPCO and he entered into various employment agreements with non-compete covenants. The most recent and controlling agreement contained a non-compete clause prohibiting Moore from “soliciting business in competition with the Company [NAPCO] from any customers of. . . [NAPCO], with which the employee [Moore] made sales efforts in the year prior to the termination within. . . Florida. . . for a period of one year (360 days) after the date of termination.” After 15 years of employment with NAPCO, Moore resigned. Despite the non-compete clause, he started and became Chief Executive Officer of Tru-Cut in Florida, which was poised to be a direct competitor of NAPCO. Additionally, before his resignation, Moore and a former NAPCO employee, John Bennett (“Bennett”), worked together to prepare for the creation of Tru-Cut. Bennett began to formulate sales strategies to market to NAPCO customers while Moore applied for financing and listed at least five NAPCO customers as key customers of Tru-Cut.

NAPCO immediately sought a preliminary injunction against Moore. NAPCO argued that during his employment with NAPCO Moore gained substantial knowledge of NAPCO’s customers, their purchasing history, needs and preferences and, as such, NAPCO had a legitimate business interest. Furthermore, NAPCO averred that, “customers of NAPCO were enticed to do business with Moore’s new company, a direct violation of the non-solicitation agreement…” The federal court agreed with NAPCO and concluded that, “NAPCO has a legitimate business interest in protecting the substantial relationships it has with its existing customers and thus the Court must presume that NAPCO will be irreparably harmed unless Defendant can establish that NAPCO will not be harmed.” Moore argued that NAPCO could not have been irreparably harmed because NAPCO did not have contracts with its customers and, thus, Moore could not have interfered with customer relationships. The federal court rejected this argument. The court stated that the “focus of preliminary injunctive relief is on maintaining long standing relationships and preserving the goodwill of a company built up over the course of years of doing business. Whether a company has a contract or not with its customers has no bearing on whether the company has been or will be damaged by solicitation of its customers.” Furthermore, the court found the “net effect of this solicitation has a high possibility of permanently damaging the reputation and goodwill of [the employer].” The court affirmed the trial court’s decision and granted NAPCO’s motion for a preliminary injunction against its former employee.

Peter Mavrick is a Palm Beach non-compete attorney. This article does not serve as a substitute for legal advice tailored to a particular situation.