Generating new customers can be a challenging and expensive endeavor. To identify new prospects, businesses may send their employees to trade shows, conferences or other events to meet potential new customers and prospects. After expending significant resources in time and money to locate prospective customers, a business may want to ensure that its employees do not funnel those customers to a competitor. This can be accomplished through an effective noncompetition agreement pursuant to Florida statutes Section 542.335.

Generally, contracts in restraint of trade are void as against public policy, however, Section 542.335 creates an exception if certain requirements are met. To be enforceable, a restrictive covenant (including a noncompetition agreement), must be in writing, signed by the person against whom enforcement is sought, and last for a reasonable time (with certain time periods presumptively established as reasonable by the statute). Additionally, the restrictive covenant must be justified by a legitimate business interest, and must be reasonably necessary to protect that legitimate business interest. “Legitimate business interests” include, among other things, “substantial relationships with specific prospective or existing customers, patients, or clients.” Section 542.335(1)(b)3, Fla. Stat. (2017), the list of legitimate business interests provided in the statute is not exhaustive. Section 542.335(1)(b), Fla. Stat. (2017) (“The term 'legitimate business interest' includes, but is not limited to: …”); White v. Mederi Caretenders Visiting Services of Southeast Florida, 226 So. 3d 774, 781 (Fla. 2017) (“The statute was never designed or intended to be an exhaustive list.”). This article will consider what kind of relationships with prospective customers, patients or clients qualify as a legitimate business interest.

When considering whether prospective customers qualify as a legitimate business interest, it is useful to consider the general principles establish what qualifies as a legitimate business interest. Section 542.335(1)(b), Fla. Stat. (2017), lists a series of interests that qualify as legitimate business interests. The “list reveals only one discernable similarity: preventing unfair competition by protecting crucial business interests,” as in White v. Mederi Caretenders Visiting Services of Southeast Florida, 226 So. 3d 774, 784 (Fla. 2017). A legitimate business interest “'is an identifiable business asset that constitutes or represents an investment by the proponent of the restriction such that, if that asset were misappropriated by a competitor (i.e., taken without compensation), its use in competition against its former owner would be unfair competition,'” (quoting John A. Grant, Jr. & Thomas T. Steele, Restrictive Covenants: Florida Returns to the Original “Unfair Competition” Approach for the 21st Century, Fla. B.J., November 1996, at 53, 54) (emphasis added by Florida Supreme Court). Thus, in considering whether prospective customers are legitimate business interests, the court should consider whether it would create an unfair competitive advantage if the relationships with those specific prospective customers were transferred to a new owner without payment.

In addressing whether specific prospective customers qualify as legitimate business interests, courts focus on the relationship with the prospective customer. For example, in Reliance Wholesale v. Godfrey, 51 So. 3d 561, 563 (Fla. 3d DCA 2010), the employer sent an employee to trade shows at its expense, “which allowed her to establish personal, business relationships with customers and potential customers,” and gave her “an expense account to meet and entertain prospective customers.” After the employee left and began working for a competitor, the now former employer sought an injunction enforce the non-competition agreement. The court explained that, “as with many sales positions, regardless of the industry, forming relationships with prospective and existing customers is invaluable and often vital for success.” Thus, the relationships the former employee developed with potential customers, at the employer's expense, constituted legitimate business interests under Section 542.335(1)(b).

The prospective customer relationship does not necessarily need to be with the specific employee, rather, the employer must show that it (the employer) had a relationship with a specific prospective customer, as in Milner Voice & Data v. Tassy, 377 F. Supp. 2d 1209, 1218 (S.D. Fla. 2005). As a result, an employer can maintain a legitimate business interest in specific prospective customers and enforce a noncompetition agreement against an employee who does not necessarily personally interact with prospective customers. This allows the employer to use noncompetition agreements to protect its records of prospective customers (for example, a prospective customer list).

While it is not necessary for a party seeking to enforce a noncompetition agreement to identify every single prospective customer, the party cannot claim that every person in a geographical area is a prospective customer. The plain language of the statute makes clear that the party seeking to enforce a noncompetition agreement must be protecting its substantial relationships with specific prospective customers. This is because “one cannot have 'substantial relationships' with 'prospective patients' who are unidentified or unidentifiable,” as in University of Florida, Board of Trustees v. Sanal, 837 So. 2d 512, 516 (Fla. 1st DCA 2003). When the University of Florida argued that it had a legitimate business interest in all persons within a 50-mile radius of its facility as “prospective patients,” the court determined that the unambiguous language of Section 542.335 prohibited a claim to the public at large as prospective patients. Instead, the court held that “to qualify as a 'legitimate business interest' pursuant to Section 542.335(1)(b) 3, a 'relationship' with a 'prospective patient' must be, in addition to 'substantial,' one with a particular, identifiable, individual.”

However, in the context of an exclusive license between business, a business may have a legitimate business interest in prospective customers even when they are not specifically identified. In MDS (Canada) v. Rad Source Techs. Inc., 2009 WL 10668765, at *6 (S.D. Fla. Oct. 27, 2009), the inventor of a blood radiation device gave an exclusive license to the plaintiffs that included a seven-year noncompetition agreement, and then began selling a newer device that was essentially an upgrade of the original device. The court found that the plaintiffs had a legitimate interest in “their relationships with current and prospective customers,” under Section 542.335. Although this decision indicates that there are circumstances where the public at large could be a prospective customer, if the decision is correct, it is likely limited to exclusive licensing or similar agreements, such as franchise agreements.

While there have not been an extremely large number of cases in which courts address the limits of when prospective customers qualify as legitimate business interests, the opinions that have been written provide guidance in enforcing noncompetition agreements that include prospective customers. In explaining these principles, the party seeking to enforce the noncompetition agreement will be referred to as the “former employer,” and the party against whom enforcement is sought will be referred to as the “former employee.”

First, the former employer should emphasize the resources that it invested in developing the relationships with the prospective customers. Because, as the Florida Supreme Court recently stated in White, noncompetition agreements have the primary purpose of protecting against unfair competition, by showing the resources it invested, the former employer can demonstrate that it would be unfair to allow a competitor to obtain the benefits of those investments from the former employee without paying for them when the former employee entered into a non-competition agreement.

Second, the former employer should explain the relationship it developed with the prospective customers. If the former employer sent its employees to places or events to identify prospective customers, hosted events with prospective customers, paid its employees to go out and meet prospective customers, or developed relationships with prospective customers online or through other means, it can show how its relationship with those prospective customers was built.

Finally, the former employer should focus on specific prospective customers. The former employer may have a list of prospective customers, or may be able to identify specific prospective customers of which the former employee was aware. In a less clear case, the former employer could argue that the former employee could only have met a specific prospective customer through a trade show the former employee attended at the former employer's expense. Establishing some connection to specific prospective customers is critical, however, as the former employee will most likely not be successful arguing that every person within a given geography is a prospective customer.

If the former employer can demonstrate that it expended resources to develop relationships (3) with specific prospective customers, it can probably show that the prospective customers were a legitimate business interest under Florida Statutes section 542.335. By demonstrating that its prospective customers constitute a legitimate business interest, the former employer will establish an essential, although not the only, element in enforcing a noncompetition agreement.

John Terwilleger is an attorney at Gunster in West Palm Beach who practices in commercial litigation, intellectual property litigation and professional malpractice defense.