FORT LAUDERDALE NON-COMPETE AGREEMENTS: SUBSTANTIAL RELATIONSHIPS WITH CUSTOMERS MUST BE SUFFICIENTLY PROVEN

For a non-compete agreement to be enforceable, it must be founded on a legitimate business interest which justifies the need for the restraint on competition. A substantial relationship with customers is a common reason asserted to justify the non-compete, however, courts will often examine the exclusivity and nature of the relationship with the customer to determine if the protection is reasonably necessary. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida. Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.

An example of this occurred in the case of Anich Indus., Inc. v. Raney, 751 So. 2d 767 (Fla. 5th DCA 2000). Anich Industries, Inc. (Anich), an industrial tool and supply business, hired Deanna Raney (Raney) as a salesperson. Anich and Raney entered a non-compete agreement. A few months after entering the agreement, Raney resigned and accepted a position with Anich’s competitor, Olsen Industrial Sales, Inc. (Olsen). Anich filed a lawsuit against Raney and Olsen seeking injunctive relief, temporarily and permanently, as well as damages based on breach of the non-compete agreement, and other claims. Anich filed a motion for temporary injunction.

At the evidentiary hearing on the motion for temporary injunction, Anich presented testimony from three witnesses who purchased tools and equipment from Anich through Raney. These witnesses testified that Raney sold them equipment on behalf of Olsen shortly after her employment with Anich ended. One witness testified that Raney sold him a tool on behalf of Olsen while still employed by Anich. Each of these witnesses, however, conceded that they did not have an exclusive relationship with Anich and that they purchased tools and equipment from whomever could most quickly and cheaply supply the necessary equipment.

Mary Anich, Anich’s President, testified that Raney was familiar with Anich’s customers, their needs, Anich’s pricing information and costs. She further testified that Raney failed to return written materials that belonged to Anich, and that she knew Raney had solicited customers of Anich’s because she saw Olsen business cards at her customers’ places of business.

Raney’s witness, a former Anich employee, testified that there was no special training, trade secrets, or “inside information” involved in being a sales person for Anich in the industrial tool and supply business. The only confidential information that he was aware of was the cost to Anich in securing industrial tools and supplies to sell later. Raney testified that during her employment with Anich, she did not have the authority to set prices for her sales, and that she did not know the costs to Anich of the tools and supplies she was selling. She testified that she received little training, did not learn any trade secrets, and had not kept any of Anich’s documents.

After the hearing, the trial judge orally enjoined Raney from revealing trade secrets, “if she [had] any.” He also orally enjoined her from doing business with certain Anich customers. Two weeks after the hearing, the trial court entered an order denying Anich’s motion for temporary injunction without explaining the reasoning behind the decision. Anich appealed.

A party seeking the entry of a preliminary injunction must demonstrate: i) irreparable harm; ii) a substantial likelihood of success stemming from a demonstrably clear legal right; iii) an inadequate remedy at law; and iv) consideration of the public interest. Wilson v. Sandstrom, 317 So.2d 732 (Fla.1975); St. Lucie County v. Town of St. Lucie Village, 603 So. 2d 1289 (Fla. 4th DCA 1992).

Anich contended that it established several legitimate business interests, including: i) that Raney possessed Anich’s trade secrets; ii) that Raney learned valuable confidential information that were not trade secrets but were a legitimate business interest; and iii) that there were substantial relationships with specific customers derived from Raney’s work for Anich that she used to her advantage in her new position. The appellate court disagreed.

The appellate court did not find that the record reflected sufficient evidence of Anich’s trade secrets or valuable confidential information possessed by Raney. The parties disputed Raney’s knowledge of Anich’s costs, profits, and pricing structure. Raney’s knowledge of Anich’s customers, their purchasing history and needs and specifications also was disputed. Raney presented testimony that Anich’s customers would be commonly known. Information that is commonly known in the industry and not unique to allegedly injured party is not “confidential” and thus not entitled to protection. Keel v. Quality Medical Systems, Inc., 515 So.2d 337 (Fla. 3d DCA 1987).

Anich’s contention that it proved that Raney sought to take advantage of substantial relationships with specific customers was not supported by evidence in the record. Anich asserted that the “substantial relationships” contemplated in the statute are the relationships between the employer and the customer. Conversely, Raney contended that the substantial relationships are those developed between the employee and the customer. “The purpose of the statutory provision is to prevent an employee from taking advantage of a customer relationship which was developed during the term of the employee’s employment. Bradley v. Health Coalition, Inc., 687 So.2d 329 (Fla. 3d DCA 1997). The appellate court held that irrespective of which interpretation was applied, substantial relationships were not shown.

All the customers who testified on Anich’s behalf acknowledged that they made their industrial tool and equipment purchases based primarily on cost and the company’s ability to provide the goods quickly. The appellate court did not find much evidence of an exclusive or other kind of relationship that could be construed as substantial within the meaning of the statute. Based on Raney’s interpretation of a substantial relationship, it is obvious that in less than three months with Anich she did not have the opportunity to develop a such a relationship with any of her customers.

The appellate court held that the trial court was correct not to grant a temporary injunction in favor of Anich, since all non-compete covenants must be founded on an interest, determined by law, to be the proper subject of protection. Kephart v. Hair Returns, Inc., 685 So.2d 959 (Fla. 4th DCA 1996). The appellate court found that Anich did not demonstrate the existence of a legitimate business interest pursuant to Section 542.335 of the Florida Statutes. Anich failed to demonstrate a substantial likelihood of success stemming from a demonstrably clear legal right, and was not entitled to the entry of an injunction in Anich’s favor. The trial court’s denial of the motion for temporary injunction was affirmed.

Peter Mavrick is a Fort Lauderdale non-compete lawyer who also practices non-compete litigation in Palm Beach, Boca Raton, and Miami. This article does not serve as a substitute for legal advice tailored to a particular situation.