When do former customers constitute a legitimate business interest?
In a sale of business context, the short answer is, “Pretty much all of the time.” The purchaser of assets and goodwill of a business can, by agreement, completely remove the seller of the business from the field of competition. Even where a seller re-enters the marketplace and offers a product that the purchaser has decided not to sell, the seller’s former clients are still off limits.
In all cases, substantial relationships with specific prospective or existing customers constitute legitimate and protectable business interests. Fla. Stat. § 542.335. Noticeably missing from the statute is protection of former customers. Arguably, sellers of a business should therefore not be prohibited from soliciting customers who were abandoned by the purchaser of the business. Obviously, that ship has sailed. As applied to restraints against former employees, however, decisional law interpreting the statute does not go nearly as far as restraints against sellers of businesses.
At the very least, the Fifth District agrees 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.” Envtl. Servs., Inc. v. Carter, 9 So. 3d 1258, 1265 (Fla. 5th DCA 2009). The Court there, however, went on to uphold an injunction issued against the defendants that restricted them from doing business with their prior employer’s former customers, specifically finding that, “ESI was attempting to protect established relationships with identifiable clients with whom it either had current projects or ongoing relationships.” Id at 1266. The Court seems to have concluded that the customers at issue became “former” customers of the employer only due to the wrongful acts of the defendants. As such, injunctive relief was proper. Sometimes, however, this is not the case.
In Moon v. Med. Tech. Associates, Inc. (one of our cases) both parties relied on Envtl. Serv. in their respective papers leading up to a hearing on defendant’s motion for preliminary injunctive relief. The Court denied such relief finding that certain of defendant’s customers, “…testified their relationships with MTA dwindled not based on the Respondents’ conduct, but rather the decreased level of service MTA provided after the Respondents departed MTA…” Moon v. Med. Tech. Associates, Inc., 2015 WL 413347, at *7 (M.D. Fla. Jan. 30, 2015). The decision there stands for the proposition that an employer’s actions in deteriorating its customer relationships can be used to show that relationships with those former customers were not legitimate business interests.
In Anich Indus., Inc. v. Raney, the Court was faced a contention by Anich that its ongoing relationships with its customers were protectable. The Court denied injunctive relief in part because, “The customers who testified on Anich’s behalf all acknowledged that they made their industrial tool and equipment purchases based primarily on cost and the supplier’s ability to provide the goods quickly.” Anich Indus., Inc. v. Raney, 751 So. 2d 767, 771 (Fla. 5th DCA 2000).
Finally, in Shields v. Paving Stone, Paving Stone was granted a preliminary injunction for all of the customers on its customer list. Finding that certain of those customers had been awarded through an open bidding process, the Court held in part that, “In enjoining Shields from soliciting those customers listed on Paving Stone’s customer list, the order must clearly direct that such prohibition does not include customers obtained through the open bidding process.” Shields v. Paving Stone Co., 796 So. 2d 1267, 1269 (Fla. Dist. Ct. App. 2001).
From these cases, we can arrive at three situations in which relationships with former customers are not protectable, even when the employer has conducted business with the customers over a period of years. Those situations exist where:
- The quality of employer’s products and/or service diminished;
- The customers consistently shop around for the best alternative; or
- The customers open projects to bidding by prospective suppliers.
Based on this, the operative question should be, “Absent the employee’s alleged breach, is there a substantial likelihood that the customer would have continued the relationship with the prior employer?” If the quality of employer’s work is in doubt, the answer is, “No.” If the customer makes an independent decision on which vendor to use each time it needs products or services, the answer is, “No.” If the customer elects to open its doors to bidding, the answer is, “No.” As a logical corollary, if the customer transitioned away from the former employer to a new vendor prior to conducting business with the employee, the answer is, “No.”
The case law supports the proposition that former customers are protected only when the relationship between the employer and the customer is terminated due to the conduct of the employee. It is incumbent upon the employee to demonstrate that some intervening cause brought about the end of the relationship.
Nathan Saunders is a trial lawyer and litigator at Jonathan Pollard, LLC. His office is based in Fort Lauderdale, Florida. He focuses his practice on non-compete and trade secret litigation and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380.