Over the past several years, we have been involved in more than 300 non-compete disputes. We resolved the vast majority of these disputes out of court. But we have also done our fair share of non-compete litigation (on both sides). We have obtained injunctions on behalf of our clients. See, e.g., DL Cycles v. Paul Mazurek, Case No. 1102015-00907 (Collier County 2015) (securing permanent injunction for DL Cycles d/b/a Trek Bicycle Stores against former regional manager). And we have beaten numerous injunctions on behalf of other clients. See, e.g., Evans v. Generic Solution Engineering, No. 5D15-578, 2015 WL 6554429, at *2 (Fla. 5th DCA 2015) (vacating preliminary injunction); Moon v. Medical Technology Associates, 577 F. App’x 934, 935 (11th Cir. 2014) (vacating preliminary injunction); Moon v. Medical Technology Associates, 2015 WL 413347, at *1 (M.D. Fla. Jan. 30, 2015 (denying preliminary injunction on remand). I say this to emphasize the fact that we have extensive experience in this arena. From this vantage, I see a lot of recurring themes. This is the first post in a series that will touch upon recurring themes. Today’s recurring theme is customer goodwill.
Plaintiffs (and plaintiffs’ lawyers) in non-compete cases tend to beat the drum about customer goodwill. Let me explain why: In Florida, as in many other states, injury to a company’s goodwill is considered irreparable harm sufficient to justify an injunction. Beyond this, the concept of goodwill is a bit vague. So if the plaintiff claims about customer relationships are a bit weak, they will often make the strategic decision to put everything in terms of goodwill. Again, because the meaning is a bit vague and that claim alone (“It’s hurting our goodwill!”) is often enough to get an injunction in Florida state court. Let’s unpack this:
The concept of goodwill is subject to numerous definitions and understandings. The most widely accepted definition of goodwill, however, is this: The expectation of continued patronage. We can flesh it out further, but that’s the very heart of the concept. That old customers will keep coming back and that new customers will keep showing up for any number of reasons (location, celebrity, reputation, skill, influence, etc).
In the non-compete context, the goodwill argument works like this: Joe Smith sold medical devices for ABC Co. If he has a non-compete but jumps ship to go work for MedCo, he might destroy ABC’s expectation of future business with various customers. In other words, but for Joe Smith’s actions, those customers would have stuck with ABC Co. I see this argument all the time. Here’s the rub:
I have been involved in numerous cases where plaintiffs deployed the goodwill argument, but the argument was utterly bogus. In order for a plaintiff to obtain an injunction because a former employee is a threat to their goodwill, they should first have to demonstrate that they have goodwill. In the injunction context, that means the plaintiff should be forced to (1) make a substantial showing that (2) they have a reasonable expectation of continued business with (3) specific customers. And there are many situations in which the plaintiff simply cannot make such a showing. For example:
- Everything is bid. If it’s open bidding, then the plaintiff cannot have a reasonable expectation of continued patronage/business. The only reasonable expectation they can have is the right to bid.
- The plaintiff never did business with certain customers. If the plaintiff puts numerous customers at issue but only did business with a fraction of them, then narrow it down. A plaintiff can’t have an expectation of continued business if they never had business in the first place.
- The relationship ended. If the relationship between the plaintiff and customer ended for some other reason (bad service, pricing that wasn’t competitive, quality of goods, etc.), then the relationship is over. Back to the hypothetical above. Before Joe Smith leaves ABC Co., ABC has a huge falling out with Miami Surgical Inc. Miami Surgical says they’ll never do business with ABC again. Joe leaves, goes to MedCo and then tries to pick-up Miami Surgical as a client. There’s no threat to goodwill because that relationship ended. There’s no expectation of continued business.
Bottom line: The best way to attack goodwill is by defining it as the expectation of continued patronage and demonstrating why the plaintiff could not reasonably expect future business from the customer(s) at issue. On the flip side, the best way to make the case for goodwill as a legitimate business interest is to show factors that tend to support an expectation of future business (i.e. long term contract, constant stream of recurring business, etc).
The caveat: This analysis of goodwill is much different in sale of a business non-compete cases.
Jonathan Pollard is a trial lawyer and business litigation attorney based on Fort Lauderdale, Florida. He focuses his practice on competition law and has extensive experience litigating non-compete, trade secret and antitrust claims. He is licensed in all Florida federal and state courts 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.