In any given week, roughly twenty people call my office regarding a non-compete or trade secrets case. The vast majority of the time, the call comes from a former employee who has signed a non-compete agreement, left one company and gone to work for another. In some instances, the individual hasn’t gone to work for a rival company, but instead, has started the rival company. In almost every instance, the person calling has either received a cease and desist letter or already been sued.
Customers are the lifeblood of any business. Not surprisingly, customers often play a prominent role in non-compete and trade secret disputes. In many of these cases, the two sides are really fighting over customers, clients, patients. Under Florida law, a non-compete agreement can be used to protect customer relationships provided that those relationships are exclusive or substantial. This post is going to examine how plaintiffs in non-compete cases set up the customer relationship as a protectable interest and how defendants can attack that claim.
Under Florida law, a non-compete agreement is valid only if it is necessary to protect a legitimate business interest. One of the most commonly litigated interests is customer relationships. In the standard fact pattern, Joe Smith worked at Apex Medical Sales in Miami. He has worked at Apex Medical for three years and has done very well selling orthopedic equipment. A new medical equipment company, Topline Medical, moves into the market and sets up shop in South Florida. Topline recruits Joe and hires him away from Apex Medical.
Apex immediately sends Joe a cease and desist letter. In that letter, in addition to general allegations about Joe violating his non-compete agreement, Apex also addresses the issue of customer relationships. In the standard cease and desist letter, the former employer attempts to set up the case for customer relationships or customer information as the basis for enforcing the non-compete agreement. The plaintiff’s argument usually works like this: First, Joe is contacting our customers. Joe’s employment agreement contained non-compete and non-solicitation provisions, so that contact is a clear violation of the agreement. Second, Joe is using confidential customer information, including customer identities, names of contact people, purchasing histories, client needs, etc.
When you receive a cease & desist letter that goes directly at the customer issue, you need to take it seriously. When Plaintiffs file non-compete lawsuits, their two biggest concerns are customers and confidential information. If Apex learns that Joe is trying to steal their clients, there’s a good chance that Apex will panic and rush to court to file a lawsuit and seek a temporary restraining order.
But Joe has defenses. Whether he hires a lawyer to respond to Apex’s cease and desist letter, or, winds up getting sued and needing to defend himself in court, Joe still has a strong chance of beating the case.
Yes, Joe contacted Apex’s customers. But there are a number of reasons why this is legally permissible. First, who are the customers in this hypothetical? Joe sells medical equipment. The customers are likely to be hospitals and doctors. The identities of these customers are not secret. Anyone can easily identify these customers by searching Google or opening the Yellow Pages. Beyond this, it appears that these customers probably do business with a number of companies that sell medical equipment. The customers probably buy based on price and quality. All of these factors tend to undercut the idea that Apex had exclusive or substantial customer relationships.
Next, there is the issue of supposedly confidential customer information. This is another plaintiff’s argument that is only superficially plausible. Sure, if Joe stole client files when he left Apex, he has a problem. But if Apex is building its case on the idea that Joe knows about the clients and their needs, that’s a problem. A customer’s purchasing history does not constitute confidential information that belongs to the company (e.g. Apex). That information is publicly available. Likewise, a customer’s specific needs is not confidential. Any competitor in the market can easily ascertain what that client needs. Particularly when you have a product market characterized by transparency and lots of price competition, customer relationships are unlikely to justify enforcement of a non-compete agreement.
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.