Protecting Goodwill as a Legitimate Business Interest in a Restrictive Covenant Enforcement Action
Given the proliferation of restrictive covenant agreements, practitioners in Florida are likely often confronted by prospective, current, and former employees seeking advice concerning the enforceability of such agreements.[1] And if presented with a situation in which there were no substantial customer relationships, extraordinary training, or confidential or trade secret information, it would likely be safe to presume that most practitioners (in the typical case) would feel confident in the employee’s chances of defeating any enforcement action.[2] In conducting this analysis, it also seems likely that many, if not most, practitioners would be unconcerned with the employer’s investments generally; after all, it can safely be assumed that most businesses invest in themselves in some way, and certainly Florida law could not make it that easy to permit a party to interfere in the free market.
However, the recent decision of Ansaarie v. First Coast Cardiovascular Institute, P.A., 252 So. 3d 287 (Fla. 1st DCA 2018), has shed light on what may be the most misunderstood and misapplied legitimate business interest under F.S. §542.335 (hereinafter referred to as “the restrictive covenant statute”): the goodwill business interest. Further, Ansaarie has arguably made it much easier to establish a legitimate business interest in goodwill under the restrictive covenant statute. The possible ease with which a legitimate business interest may now be established presents a very real threat to Florida’s workforce and the statutory construct created by the legislature, as explained in this article.
The restrictive covenant statute allows for the protection of customer, patient, or client goodwill associated with three categories: 1) “[a]n ongoing business or professional practice, by way of trade name, trademark, service mark, or ‘trade dress’”; 2) “[a] specific geographic location”; or 3) “[a] specific marketing or trade area.”[3] However, the restrictive covenant statute is silent as to the meaning of “goodwill.”[4] Likewise, John Grant and Thomas Steele did not expressly discuss the meaning of “goodwill” in their seminal article on the restrictive covenant statute.[5]
Despite this silence, goodwill is certainly a term capable of definition.[6] Indeed, when the legislature passed the restrictive covenant statute, it was not writing on a blank slate; the term “goodwill” had come to find meaning in Florida law generally.[7] Nevertheless, and as evidenced by the recent decision in Ansaarie, it is apparent that Florida courts have drifted from the common and proper understanding of goodwill when applying the restrictive covenant statute.[8] This misapplication seems especially apparent in light of White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, 226 So. 3d 774 (Fla. 2017), where the Florida Supreme Court provided a great deal of insight into the purpose of the restrictive covenant statute.[9]
Accordingly, this article proceeds in four parts. One, a brief examination of how “goodwill” has been defined in Florida law. Two, an examination of Florida caselaw analyzing goodwill as a legitimate business interest. Three, a discussion of why the current caselaw analyzing goodwill runs contrary to the language and purpose of the restrictive covenant statute. Four, and finally, a discussion of the relevant inquiries consistent with the text and purpose of the restrictive covenant statute that courts should be undertaking in analyzing goodwill.
Goodwill Defined
While there have been judicial efforts at defining the term, a precise and uniformly accepted definition of “goodwill” has not developed.[10] While these opinions have refined the definition of goodwill over time, a definitive definition remains to be found,[11] and given the intangible nature of goodwill, such a definition may well never be achieved.[12]
Nevertheless, generally speaking, goodwill is an asset that confers on its holder a reasonable expectation of greater than usual business or earnings.[13] Florida courts are in accord with this general definition, having defined goodwill as the ability of a business to generate supra-normal revenue.[14] A business’ goodwill may emanate from any one of a number of potential sources,[15] but is typically evidenced by continued public patronage and supra-normal profits.[16]
It is important to understand in the analysis of the term that “goodwill” has specific reference to the particular business entity at issue.[17] As stated by the Florida Supreme Court, goodwill “attaches to and is dependent upon an existing business entity; the reputation and skill of an individual entrepreneur — be he a professional or a traditional businessman — is not a component of the intangible asset we identify generally as goodwill.”[18] Further underscoring this point, goodwill is the “value of the practice which exceeds its tangible assets and which is the tendency of clients/patients to return to and recommend the practice irrespective of the reputation of the individual practitioner.”[19]
How Florida Courts have Applied the Goodwill Legitimate Business Interest
It is worth briefly mentioning that, prior to the enactment of the restrictive covenant statute, the term “goodwill” appears to have been used inconsistently. The term had been used in the text of both F.S. §§542.12 and 542.33(2)(a), the predecessors to the restrictive covenant statute.[20] On the one hand, the First District Court of Appeal, in Obi v. Singletary, 346 So. 2d 1239 (Fla. 1st DCA 1977), employed it in a manner consistent with its commonly understood, common law meaning.[21] On the other hand, later courts used the term when describing protectable customer relationships.[22] Regardless of the precise meaning of “goodwill” under prior statutes, the restrictive covenant statute decoupled customer relationships from “goodwill” by making each its own unique business interest.[23]
Although the restrictive covenant statute was enacted in 1996, no Florida court has yet defined “goodwill” with any precision. Instead, Florida’s courts have summarily dealt with the issue based upon the facts presented by each case, leaving practitioners to discern a working definition from the facts, circumstances, and reasoning of the decisions as a whole.[24] From the decisions in Florida that have dealt with the goodwill business interest in any meaningful way, two approaches emerge.
In one approach, several cases have taken an investment-centric approach to analyzing whether goodwill exists.[25] Most recently, in Ansaarie, the First District Court of Appeal determined[26] that the party seeking enforcement had established a business interest in patient, client, and customer goodwill solely on account of its “substantial investments in developing its existing patient, client, and customer base.”[27] While the court did not elaborate on what would constitute a substantial investment, its reliance on Southernmost Foot & Ankle Specialists, P.A. v. Torregrosa, 891 So. 2d 591 (Fla. 3d DCA 2004), for this proposition suggests that the investment need not be all that “substantial.” In Torregrosa, the investment made by the former employer appeared to be entirely ordinary and usual; to wit, the former employer had developed its business, been in business for 20 years, and hired Dr. Torregrosa fresh out of medical school.[28] Other cases also suggest that the substantiality requirement articulated by the Ansaarie court is, practically speaking, a low hurdle to clear.[29]
Taking a different approach, two Florida courts have taken a relationship-centric approach to analyzing whether goodwill exists, essentially equating goodwill with customer relationships.[30] For instance, in Litwinczuk v. Palm Beach Cardiovascular Clinic, L.C., 939 So. 2d 268, 272-73 (Fla. 4th DCA 2008), the Fourth District Court of Appeal placed a heavy emphasis on the existence of patient relationships in concluding that patient goodwill existed.[31] Likewise, the reasoning in Torregrosa can be read as establishing that the mere existence of patient relationships undergirded the conclusion that goodwill had been established.[32] However, these cases do not shed any light on what customer relations rise to the level of being protectable or what facts are pertinent to such an inquiry under the goodwill interest. The lack of emphasis on the nature of the relationships suggests that the mere fact of a relationship is sufficient.[33]
Reconciling these decisions, it seems the goodwill business interest may be established either by demonstrating that “substantial” investments were made by the business seeking to enforce the covenant or by demonstrating the existence of customer relationships. That said, Florida courts have not expressly ruled that these are the only relevant approaches in analyzing whether goodwill exists.
Current Caselaw
Florida’s courts have stated that “the competitive free enterprise system” is “the basis for the American economy and our very way of life.”[34] Thus, the clear public policy of Florida is in favor of free and open competition.[35] Nevertheless, Florida’s legislature has deemed it permissible for parties in this state to interfere with the free market provided that the competition being eradicated or limited would be unfair.[36] More specifically, this means that the party seeking enforcement of such an agreement in Florida must establish that its covenant does not run afoul of the restrictive covenant statute.
Among other things, the party seeking enforcement of its covenant must demonstrate the existence of one or more legitimate business interests.[37] Recently, the Florida Supreme Court in White discussed the purpose of the legitimate business interest requirement.[38] In discussing what makes a business interest protectable, the White court identified two interrelated, key guideposts.[39] These guideposts were derived from three sources: 1) the text of the restrictive covenant statute, 2) the seminal article on the same penned by John Grant and Thomas Steele, and 3) Florida’s public policy in favor of free competition.[40]
One, legitimate business interests are those assets of a business that are “crucial” or of the utmost importance to the party seeking enforcement.[41] Two, legitimate business interests are those assets of a business that, if misappropriated, would give the breaching party an unfair advantage in the market over the party seeking enforcement.[42] Stated differently, legitimate business interests may be seen as those that, if misappropriated, would give the breaching party an advantage that is not usual or inherent in a competitive free market.[43] Consequently, while protection will generally inure to those special assets of a business that confer upon it some unique or critical return or advantage, the preference of Florida law not to interfere in the free market means that not every important asset will be entitled to protection.[44]
Against this backdrop, the misapplication of the goodwill business interest becomes apparent. Under either the investment-centric or relationship-centric approach, the current understanding of the goodwill business interest undermines the construct and purpose of the restrictive covenant statute.[45] Indeed, the current application of the goodwill business interest threatens to introduce into Florida law a right of the party seeking enforcement to unreasonably interfere in the free market, a result the restrictive covenant statute was designed to prevent.[46]
As discussed, “goodwill” has a commonly understood meaning.[47] Further, Florida law had established a legal definition consistent with that common understanding prior to the enactment of the restrictive covenant statute.[48] Moreover, the restrictive covenant statute fails to provide an alternative definition of goodwill.[49] And the deliberate choice to disentangle goodwill and protectable customer relationships demonstrates the legislature’s intent that “goodwill” stand on its own.[50] In light of the foregoing, a plain-text reading of the restrictive covenant statute requires construing the term goodwill consistent with its commonly understood legal meaning.
Neither the relationship-centric or investment-centric approach has concerned itself with an essential element of goodwill: whether the business is enjoying supra-normal profits.[51] As such, each fails to analyze the goodwill business interest consistent with the plain text of the restrictive covenant statute. Further, while investments and customer relationships may certainly be contributing causes to a business’ supra-normal profits, no straight line can necessarily be drawn between mere investments or customer relations and the ability of a business to generate supra-normal profits.[52] Nor have the courts employing either or both of the current approaches undertaken any such analysis.[53]
In fact, no straight line can be drawn between investments and the other essential ingredient of customer, client, or patient goodwill: lasting and sustainable customer relationships.[54] And it does not appear that Florida courts applying this approach have undertaken any analysis of whether such relationships existed.[55] Further, while the relationship-centric approach hues closer to a proper understanding of goodwill,[56] it, nevertheless, runs counter to the text of the restrictive covenant statute. Specifically, the overlap between the relationship-centric approach and the substantial relationships business interest is undeniable.[57] Yet, the analysis of what relationships are protectable under the guise of protecting goodwill appears to be far less rigorous.[58] Moreover, the relationship-centric approach also deviates from the plain text of the restrictive covenant statute in permitting parties to protect goodwill not attached to the business.[59] Consequently, it is not difficult to see how the current approach to determining whether goodwill exists impermissibly renders part of the restrictive covenant statute mere surplus by permitting parties to protect what are insubstantial relationships.
The current approaches to analyzing goodwill also seem to undermine the purpose of the restrictive covenant statute. That is particularly true under the investment-centric approach, which appears to permit any business to create a legitimate business interest at will regardless of whether a crucial market advantage is gained therefrom.[60] The apparent ease with which the investment-centric approach permits businesses to create a legitimate business interest does not square with the purpose of the restrictive covenant statute in that it arguably permits parties in Florida to influence the free market on the basis of ordinary activity that has no direct relation to securing a crucial market advantage.
Similarly, the relationship-centric approach also appears to relax the legitimate business interest inquiry to an untenable degree. As mentioned, this approach has seemingly rubber-stamped any customer relationship(s) a business has — regardless of whether some crucial market advantage has been gained therefrom.[61] The error of this approach is particularly acute in light of Grant and Steele’s article, which expressly addresses the question of which customer relationships are worthy of protection.[62] According to Grant and Steele, the only relationships worthy of protection are those that may be considered substantial and were created by the employee during their period of employment with the business.[63] In creating what is essentially a duplicative business interest that establishes a lower threshold for what relationships are capable of protection, the relationship-centric approach undoes the express intent of the legislature in crafting the restrictive covenant statute.
Properly Understanding and Applying the Goodwill Business Interest
As noted earlier, Florida’s courts have not arrived at a firm definition of “goodwill” in the restrictive covenant statute. Nonetheless, the decisions that have addressed the goodwill business interest have produced results that are inconsistent with the purpose and text of the restrictive covenant statute, and which threaten to grant parties in Florida far too much latitude in interfering with the free market. Accordingly, if consistency between the state’s stated policy goal and the statutory language is desired, a change in direction is needed.
Moving forward, “goodwill” should be given its ordinary and commonly understood meaning. This means, above all else, that in order to establish goodwill as a legitimate business interest, the party seeking enforcement should be required to demonstrate that it generates supra-normal profits.[64] Moreover, a business seeking enforcement should be required to establish that the goodwill is associated with its business, and not the personal goodwill of any departed employee or individual.[65] Further, courts must examine carefully the behavior of the business’s customers.[66] Inquiries into the identity of the customers, when they began their patronage, what percentage return, and others would be germane to this examination.
Additionally, the restrictive covenant statute requires that litigants establish, and courts consider, the source of this customer, client, or patient goodwill.[67] Thus, depending on the circumstances, one or more additional inquiries could also be relevant. For instance, what aspect of the business is the reason for the supra-normal profits and continued patronage?[68] For example, goodwill would be more likely to exist where customers are returning because of some superior trait of the business relative to its competition (e.g., excellent products or service) than when they are returning because of, for instance, the personal goodwill of a particular employee.[69] Another possible line of inquiry would be geared toward determining what level of competition exists in the given geographic, trade, or marketing area.[70] It seems far less likely that protectable goodwill would exist where the business enjoys a minor monopoly in a given geographic area because the customers in such a situation have no other choice.[71]
Conclusion
Florida’s policy of dedication to ensuring a free and robust market requires judicial vigilance when restrictive covenants are analyzed by the courts.[72] That is particularly true given the proliferation of restrictive covenants and their deleterious effect on workers and the economy writ large, and particularly so in segments of the economy increasingly driven by “gig economy” professionals who must have the ability to come into and out of shorter-term work relationships.[73] In order to achieve the balance, the legislature struck between the economy and workers and business interests, it is vital that Florida’s courts course correct toward an understanding of goodwill that is in line with the text of the restrictive covenant statute as well as the legislature’s stated policy goals.
[1] See generally Connor Dougherty, How Noncompete Clauses Keep Workers Locked In, N.Y. Times, at BU1, May 13, 2017 (discussing the proliferation of restrictive covenant agreements in America).
[2] See generally Fla. Stat. §542.335(1)(b) (2018).
[3] Fla. Stat. §542.335(1)(b)(4)(a)-(c).
[4] See generally Fla. Stat. §542.335.
[5] See generally John A. Grant, Jr. & Thomas T. Steele, Restrictive Covenants: Fla. Returns to the Original “Unfair Competition” Approach for the 21st Century, 70 Fla. B. J. 53 (1996).
[6] See Meiring De Villiers, Quantitative Proof of Reputational Harm, 15 Fordham J. Corp. & Fin. L. 567, 581-611 (2010) (discussing various meanings of goodwill, as well as tracing the evolving legal conception of the term).
[7] See, e.g., Held v. Held, 912 So. 2d 637, 639-41 (Fla. 2005) (defining goodwill and discussing history of Florida law on the issue).
[8] See, e.g., Ansaarie, 252 So. 3d at 291 (emphasis added) (holding goodwill established where “FCCI also proved its substantial investments in developing its existing patient, client, and customer base as well as patient, client, and customer goodwill in Putnam County.”).
[9] See also Hank Jackson, Fla.’s Noncompete Statute: “Reasonable” or “Truly Obnoxious?”, 92 Fla. B. J. 10 (2018) (discussing White at length).
[10] See De Villiers, Quantitative Proof of Reputational Harm at n. 7 at 590-93.
[11] Id. at 594-96 (footnotes omitted) (“Definitions which emphasize individual goodwill constituents have been codified in state and federal statutes, and articulated in legal treatises, academic commentary, practitioner journals, as well as the common law. Professor Grave Ganz Blumberg cautions that any attempt to list the assets that constitute goodwill is necessarily incomplete. Professor Blumberg explains that ‘because goodwill is a residuum of assets we are otherwise unable to quantify individually, any listing of goodwill constituents is necessarily illustrative rather than exhaustive.’”).
[12] Id. at 594-98.
[13] Id. at 591-93 (describing the modern legal view of goodwill as “a constellation of intangible assets which generate supranormal earnings and excess value”).
[14] Held, 912 So. 2d at 639 (quoting Thompson v. Thompson, 576 So. 2d 267, 269 (Fla. 1991)).
[15] Id. at n. 1; Nelson v. Nelson, 795 So. 2d 977, 981 n. 3 (Fla. 5th DCA 2001) (“Black’s Law Dictionary defines goodwill as ‘the ability of a business to generate in excess of a normal rate on assets due to superior managerial skills, a market position, new product technology, etc.’ Justice Adkins defined the term in Swann v. Mitchell, 435 So. 2d 797 (Fla. 1983) as ‘the advantage or benefit the business has beyond the mere value of its property and capital.’ Goodwill is usually evidenced by general public patronage and is reflected in the increase in profits beyond those expected from the mere use of capital. 435 So. 2d at 798.”); see also note 11 at 591-93.
[16] Held, 912 So. 2d at 639, n. 1 (quoting McDiarmid v. McDiarmid, 649 A.2d 810, 813 (D.C. 1994)); see also Nelson, 795 So. 2d at 981, n.3.
[17] See Thompson, 576 So. 2d at 269. This is not to say, however, that goodwill cannot also attach to an individual. Very clearly, it can. Id. It is only to state that courts have drawn a firm line between personal and enterprise goodwill and that goodwill generally has been said to exclude the former. Id. In any event, as explained below, the text and structure of the restrictive covenant makes clear that “goodwill” has reference to enterprise goodwill.
[18] Id.
[19] Held, 912 So. 2d at 639 (citation omitted) (emphasis added).
[20] See Grant & Steele, Restrictive Covenants at 53-54.
[21] Obi, 346 So. 2d at 1240 (citations omitted) (“An expectation of continuing patronage is goodwill.”).
[22] See, e.g., Dyer v. Pioneer Concepts, 667 So. 2d 961, 963-64, 965 (Fla. 2d DCA 1996) (holding employer had shown a protectable customer relationship and, thus, “customer goodwill”).
[23] See Fla. Stat. §542.335(1)(b)(3), (4).
[24] See, e.g., Ansaarie, 252 So. 3d at 291 (discerning meaning of “goodwill” from its application in Southernmost Foot & Ankle Specialists, P.A. v. Torregrosa, 252 So. 3d 287, 291 (Fla. 3d DCA 2004)).
[25] See id. (citing Torregrosa, 891 So. 2d at 594); see also Univ. Med. Clinics, Inc. v. Quality Health Plans, Inc., 51 So. 3d 1191, 1194-95 (Fla. 4th DCA 2011); Atomic Tattoos, LLC v. Morgan, 45 So. 3d 63, 65-66 (Fla. 2d DCA 2010); Litwinczuk v. Palm Beach Cardiovascular Clinic, L.C., 939 So. 2d 268, 272-73 (Fla. 4th DCA 2008) (citing Supinski v. Omni Healthcare, P.A., 853 So. 2d 526 (Fla. 5th DCA 2003)); Brown & Brown, Inc. v. Ali, 494 F. Supp. 2d 943, 952-53 (N.D. Ill. 2007) (concluding “substantial” investments established goodwill).
[26] Whether the rulings in these cases, including Ansaarie, are binding holdings is beyond the scope of this article. Nevertheless, considering their brief analysis and the existence of other grounds upon which to rest their ultimate conclusion, it certainly seems plausible to argue that the pertinent language in these cases is not persuasive or is mere dicta. See generally Sturdivant v. State, 84 So. 3d 1053, 1058-61 (Fla. 1st DCA 2010) (discussing meaning of obiter dictum).
[27] Ansaarie, 252 So. 3d at 291 (citation omitted).
[28] Torregrosa, 891 So. 2d at 591.
[29] See, e.g., Litwinczuk, 939 So. 2d at 270, 272-73 (ruling that former employer’s recruitment of a physician, decision to hire that physician for purpose of expanding its business, and purchase of another practice for that same purpose sufficed to establish, inter alia, a legitimate business interest in patient goodwill associated with a specific geographic area); see also Univ. Med. Clinics, Inc., 51 So. 3d at 1194-95 (finding entry of injunction appropriate where party seeking enforcement established that “it has been in business, has developed and maintained, at a substantial investment, an ongoing concern that has among its assets the relationships with QHP members, the lists of QHP’s members, the participating provider network, contracts, QHP’s reputation, goodwill and other beneficial property”); Atomic Tattoos, LLC, 45 So. 3d at 65 (“Atomic Tattoos presented evidence that it researches whether the location population matches its customer base; that it considers factors such as age and income level to ensure it can be successful at the particular location; that it keeps an extensive database of its customers, including how far they live from the studio; and that this database illustrates that a majority of Atomic Tattoos’ clients live within [12] to [15] miles of any of its locations. Moreover, testimony was presented that repeat customers comprise a percentage of Atomic Tattoos’ business and that Atomic Tattoos tries to increase the potential for repeat business with its customers through advertising and direct mailing.”).
[30] See Litwinczuk, 939 So. 2d at 270, 272-73 (focusing on existence of customer relationships, inter alia, as proof of goodwill); Torregrosa, 891 So. 2d at 593, 594 (same); see also Allied Universal Corp. v. Given, 223 So. 3d 1040, 1043 (Fla. 3d DCA 2017); Avalon Legal Servs. v. Keating, 110 So. 3d 75, 82 (Fla. 5th DCA 2013); Atomic Tattoos, LLC, 45 So. 3d at 65-66; JonJuan Salon, Inc. v. Acosta, 922 So. 2d 1081, 1084 (Fla. 4th DCA 2006); USI Ins. Servs. of Fla. Inc. v. Pettineo, 987 So. 2d 763, 766-67 (Fla. 4th DCA 2008) (concluding goodwill business interest exists to protect customer relationships); Contl. Grp., Inc. v. KW Prop. Mgmt., LLC, 622 F. Supp. 2d 1357, 1375 (S.D. Fla. 2009) (concluding goodwill established as a business interest where its on-site property managers developed positive relations with the particular property governing boards).
[31] Litwinczuk, 939 So. 2d at 272-73 (“Similarly, in this case Dr. Litwinczuk began practicing only a few blocks from the clinic’s offices and within a short period of time saw [49] of the clinic’s prior patients. Just as in Supinski, the trial court was within its discretion in determining that the clinic had a legitimate business interest to protect in the form of ongoing patients and patient goodwill ‘associated with a specific geographic locations.’ The trial court actually reduced the geographic reach of the injunction from all of Palm Beach County to the area from which the clinic drew its patients, concluding that this was the region in which the clinic had a legitimate business interest to protect.”).
[32] Torregrosa, 891 So. 2d at 594 (“In the instant case, Southernmost’s principals testified in detail about how they developed their medical podiatry practice in the Keys over a period of [20] years. They also testified about how they hired Dr. Torregrosa when he had just finished his hospital training and how they put him into business. The trial court properly found that this testimony established a prima facie case that the restrictive covenant was reasonably necessary to protect Southernmost’s legitimate business interests in its patient base, referral doctors, specific prospective and existing patients, and patient goodwill.”).
[33] See, e.g., Atomic Tattoos, LLC, 45 So. 3d at 65 (finding business interest in, inter alia, goodwill on the basis of seemingly ordinary business activity and client relationships); JonJuan Salon, Inc., 922 So. 2d at 1084 (“In this case, JonJuan put forward evidence at the hearing to establish that the covenant is supported by legitimate business interests. JonJuan’s owner testified that the salon’s place of business caters to a localized geographic region, that its customers tend to live in a neighborhood nearby the salon, and that JonJuan and Michael Scott compete for the same clientele. Acosta began her employment with JonJuan on September 10, 2003, when the salon opened. Although she brought some customers with her to JonJuan, during the time she worked at JonJuan, she was also given customers by the salon, such that by the time she left she was working with a mix of customers that she has brought with her and those who had been given to her by the salon. JonJuan’s owner also testified that the restrictive covenant was intended to protect JonJuan’s goodwill and substantial relationships with its customers and its geographic marketplace: ‘It protects us in ways so we don’t lose our clientele which we’ve established since we opened.’”).
[34] Wackenhunt Corp. v. Maimone, 389 So. 2d 656, 657 (Fla. 4th DCA 1980).
[35] See Fla. Stat. §542.18 (2018); see also White, 226 So. 3d at 785 (stating that employers may not use restrictive covenants to eliminate fair competition).
[36] White, 226 So. 3d at 785.
[37] Fla. Stat. §542.335(1)(b).
[38] White, 226 So. 3d at 782-85.
[39] Id. at 783-85.
[40] Id.
[41] Id. at 784.
[42] Id. at 784-85.
[43] See id.
[44] See id. at 784, 786 n. 4 (suggesting that referral sources would not rise to the level of a protectable business interest where the referral was unique to the employee and not the employer); see also Anich Indus., Inc. v. Raney, 751 So. 2d 767, 770-71 (Fla. 5th DCA 2000) (holding no legitimate business interest in “substantial” relationships existed where all customers “acknowledged that they made their industrial tool and equipment purchases based primarily on cost and the supplier’s ability to provide the goods quickly”).
[45] Even the cases that appear to employ both an investment and customer relationship approach to analyzing whether goodwill exists are an incorrect application of Florida law. As neither of these approaches on their own is correct, a combination of two incorrect approaches should not be result in a correct outcome. Two wrongs do not make a right, as the saying goes.
[46] See Grant & Steele, Restrictive Covenants note 4 at 53 (discussing contract-oriented approach to enforcement that existed in the 1970s and 1980s).
[47] See id at n. 15-20.
[48] Id.
[49] See generally Fla. Stat. §542.335.
[50] See Quarentello v. Leroy, 977 So. 2d 648, 652 (Fla. 5th DCA 2008) (citations omitted) (internal quotation marks omitted) (“Moreover, a basic rule of statutory construction provides that the Legislature does not intend to enact useless provisions, and courts should avoid readings that would render part of a statute meaningless.”); Goldman v. Campbell, 920 So. 2d 1264, 1265 (Fla. 4th DCA 2006) (citation omitted) (“The presumption is that no change in the common law is intended unless the statute is explicit and clear in that regard.”).
[51] Held, 912 So. 2d at 639-41; Thompson, 576 So. 2d at 269; see also De Villiers, Quantitative Proof of Reputational Harm at 591-93.
[52] See, e.g., Torregrosa, 891 So. 2d at 593, 594.
[53] See, e.g., Ansaarie, 252 So. 3d at 291; Litwinczuk, 939 So. 2d at 272-73; Torregrosa, 891 So. 2d at 594.
[54] See Held, 912 So. 2d at 639, n. 1; Nelson, 795 So. 2d at 981, n. 3.
[55] See, e.g., Ansaarie, 252 So. 3d at 291 (citation omitted) (“In addition to proving a legitimate business interest in its substantial relationships with existing patients, FCCI also provide its substantial investments in developing its existing patent, client, and customer base as well as patient, client, and customer goodwill in Putnam County.”).
[56] See Nelson, 795 So. 2d at 981 n. 3; see also Fla. Stat. §542.335(1)(b)(4) (protecting “customer, patient or client goodwill.” (emphasis added)).
[57] See, e.g., Litwinczuk, 939 So. 2d at 272-73 (“Similarly, in this case, Dr. Litwinczuk began practicing only a few blocks from the clinic’s offices and within a short period of time saw [49] of the clinic’s prior patients. Just as in Supinski, the trial court was within its discretion in determining that the clinic has a legitimate business interest to protect in the form of ongoing patients and patient goodwill ‘associated with a specific geographic location.’”).
[58] Compare id. with IDMWORKS, LLC v. Pophaly, 192 F. Supp. 3d 1335, 1340-41 (M.D. Fla. 2016) (synthesizing Florida law on protectable substantial relationships).
[59] See generally White, 226 So. 3d at 784, 786 (citation omitted) (emphasis added) (stating goodwill and referral sources are analogous and further explaining that “[t]his illustrates that the analysis of non-competition contracts is context driven. For example, Tummala noted that certain sources made ‘referrals based upon their assessment of the individual doctor’ and did ‘not refer to a “business” or a “practice.”’ Thus, a situation with similar facts to Tummala could come to the same result as the Fifth District there.”).
[60] See, e.g., Ansaarie, 252 So. 3d at 291.
[61] See note 57-58.
[62] Grant & Steel, Restrictive Covenants at 54.
[63] Id. (emphasis added) (“Similarly, if the proponent asserts that the restriction is necessary to protect customer relationships, it will have to ‘plead and prove’ i) that the defendant developed ‘substantial relationships with specific prospective or existing customers, patients, or clients’ while employed by the proponent.”); see also Anich, 751 So. 2d at 771 (discussing divergent arguments on this issue and declining to take a position).
[64] See note 17.
[65] See generally White, 226 So. 3d at 786 n. 4; see also note 19-20. Any right of an employer to protect relationships created through personal, as opposed to enterprise, goodwill, is protectable through Fla. Stat. §542.335 (1)(b)(3).
[66] See generally Held, 912 So. 2d at 639.
[67] Fla. Stat. §542.335(1)(b)(4)(a)-(c).
[68] See Fla. Stat. §542.335(1)(b)(4)(a).
[69] See generally Held, 912 So. 2d at 639.
[70] See Fla. Stat. §542.335(1)(b)(4)(b)-(c).
[71] See generally White, 226 So. 3d at 785 (discussing that the restrictive covenant statute arises in context of antitrust law and the public policy in favor of free and robust competition). Consistent with Florida’s policy in favor of free competition, protectable goodwill should generally be forged in the crucible of competition and not merely the product of luck or happenstance (e.g., being the first to a given market or area).
[72] See id. at 785-86.
[73] See note 1; see also Agreements that Lock Up Workers, Legally, N.Y. Times, May 16, 2017, at A26 (discussing deleterious effects of restrictive covenants).
Ronald P. Angerer II is an associate attorney practicing labor and employment law with the Law Offices of Archibald J. Thomas III, P.A. in Jacksonville. He regularly assists employees through restrictive covenant issues, including litigation.
This column is submitted on behalf of the Labor and Employment Law Section, David Whitney Scott, chair, and Robert Eschenfelder, editor.
