Under Florida Statute 542.332, legitimate business interests generally include confidential information, customer relationships or extraordinary investment in the employee’s training or education. The vast majority of non-compete disputes involve the first two of these interests. Let’s focus on customer relationships. Per the relevant Florida Statute, a non-compete agreement can be used to protect:
4. Customer, patient, or client goodwill associated with:
a. An ongoing business or professional practice, by way of trade name, trademark, service mark, or “trade dress”
What This Means in Practice
In practice, this means that a Florida non-compete agreement often can be used to prevent an employee from working at one company, leaving to go work for a competitor and then soliciting the clients of his former company. Note, however, that the client relationships at issue must be “substantial.” In practice, this amounts to exclusive or something near it. If the marketplace is a highly competitive one and the customers do business with lots of different companies in the same industry, then those relationships are unlikely to support enforcement of a non-compete agreement.
Here is a hypothetical: Mike works for a company called MX and sells medical equipment to hospitals and other medical practices in the Miami and Fort Lauderdale area. Over the course of three years with MX, Mike has built a database of sales contacts. These are generally doctors, surgeons and – in major hospitals – purchasing or supply chain executives. Mike has built this database from publicly available information. He has called hospitals on the phone. He has visited hospitals in person and managed to arrange meetings with executives in the purchasing division. He has networked with other people in the industry and played lots of golf. He’s done some research, some cold-calling and some legwork and, ultimately, produced a nice database that lists all the major players and their contact information.
Now suppose that Mike leaves MX to go work for its rival ABC Medical.
Leave the Customer Lists Behind
If Mike has given this some thought and done his homework, he will make a clean break. In other words, he will not take any of MX’s documents or materials with him. He will simply walk out the door, leave everything with the company, and make a fresh start at ABC Medical.
If Mike does this, the case becomes much easier to defend. Putting aside other possible business interests and focusing only on customers, I can make a strong argument that nothing about these customers justifies enforcement of the non-compete agreement. The identity of these customers is a matter of public record. And, in many instances, the relationships at issue will not be exclusive. Rather, the customers (e.g. the hospitals) will do business with a number of different companies that supply medical equipment. Purchasing decisions will be based principally on cost and quality. In this type of competitive market, where all the players are publicly known, we probably are not dealing with substantial or exclusive customer relationships.
Let’s change the hypothetical. Suppose Mike wants to take the database of contacts with him. Mike feels like he created the database so it sort of belongs to him. Besides, if he leaves MX and goes to work for ABC, he will need that database. If he does not take that database with him, he will have to spend time creating that same exact database all over again from scratch. If he just takes the existing database with him, he can go to ABC and hit the ground running. On his last day of work, Mike downloads the database to a flashdrive.
In this scenario, Mike is dead wrong and just made a huge mistake. First, Mike created the database during the course of his employment with MX. The database belongs to MX. It is MX company property. Second, Mike made the mistake of (stupidly) assuming that his actions would not be discovered. In today’s world, any type of computer operation leaves a trial. Whether someone prints a file, transfers a file to a flashdrive or emails a file, it leaves a trial. Any decent computer forensics expert can determine exactly what was transferred, when it was transferred and who transferred it. Third, Mike has been unbelievably shortsighted: He originally created the database from publicly available information. He could have done the same thing all over again at ABC Medical. This time around, however, it would have taken much less time. He probably remembered many of the names of the key players. Sure, he would have had to do some research and some legwork. But in the end, that would have been time well-spent.
Mike may attempt to argue that all of this cuts in favor of finding that the customers do not constitute a legitimate business interest— after all, he compiled the original database with publicly available information and he could have easily recreated the database at ABC Medical. The problem, however, is that Mike’s actions suggest otherwise. In stealing the database, Mike makes it look like the database is something extremely valuable; something confidential and proprietary. Beyond that, Mike makes himself look like the bad guy. And in non-compete cases, optics often matter.
Sure, there might still be a lawsuit even if Mike does not steal the database. But if he leaves the database behind, he is in a much stronger position to defend the non-compete case and win.
The takeaway: Aside from the obvious (i.e. do not steal things): Play offense. Even when you anticipate that you may have some non-compete problems, you should play offense. You should make intelligent, strategic decisions. You should map out your course of action and be mindful of how your actions will reflect on you and how those actions may impact your case. Sometimes, you can take an action that is, on the merits, pretty meaningless, but the action has hugely significant legal consequences. For example, Mike takes the customer database. Sure, all of the information was public. Sure, he could have gotten those customers anyway. There’s no real harm to MX. But in court, and in this context, the action makes Mike look like a bad guy, detracts from his credibility and makes the court more likely to believe that the plaintiff has a case.
Jonathan Pollard is a competition lawyer based in Fort Lauderdale, Florida. His office can be reached at 954-332-2380.