Can Professional Service Providers Enforce Non-Competes Based on Protection of Goodwill?
Reading Time: 6 minutes
In Florida, non-competes may be enforced by professional service providers so long as they are reasonable in time, area, and line of business. In addition, the non-compete must also protect a “legitimate business interest,” as defined by Section 542.335 of the Florida Statutes. The statute defines legitimate business interests through a non-exhaustive list, which includes “customer, patient, or client goodwill.” Since goodwill is among the interests listed in the statute, professional service providers can enforce non-competes based on protection of goodwill. But this naturally begs the question, how?
How Can Professional Service Providers Enforce Non-Competes Based on The Protection of Goodwill?
It is important for professional service providers to know that non-competes, “whose sole purpose is to prevent competition per se,” are void against public policy. White v. Mederi Caretenders Visiting Servs. of Se. Fla., LLC, 226 So. 3d 774, 785 (Fla. 2017). However, Section 542.335 carves out exceptions to the general prohibition by striking a balance between legitimate business interests and a person’s right to work. Id.
For a non-compete to be enforceable, the party seeking enforcement—professional service providers—must plead and prove: (1) the existence of a legitimate business interest; and (2) that the contractually specified restraints are reasonably necessary to protect the legitimate business interest. Ansaarie v. First Coast Cardiovascular Inst., P.A., 252 So. 3d 287, 290 (Fla. 1st DCA 2018). The non-compete must also be in writing and signed by the party whom enforcement is sought. Fla. Stat. § 542.335(1)(a).
Legitimate Business Interest: Goodwill
Pursuant to Section 542.335(1)(b), a legitimate business interest includes “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”;
(b) a specific geographic location; or
(c) a specific marketing or trade area.”
Florida courts have defined goodwill as “property of an intangible nature commonly defined as the expectation of continued public patronage.” Held v. Held, 912 So. 2d 637, 639 (Fla. 4th DCA 2005). Further, goodwill within a professional practice constitutes 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.” Id.
However, goodwill is not defined in the statute and no Florida court has provided a clear definition of what goodwill is in the context of a legitimate business interest. This leaves professional service providers, attorneys, and courts to rely on the facts of the case and case law to determine whether a non-compete is enforceable based on a legitimate business interest in its goodwill.
Florida courts seem to enforce non-competes based on protection of goodwill if the professional service provider invested a significant amount of time and money to build and preserve a patient or client base. Technomedia Sols., LLC v. Scopetto, No. 6:13-CV-1061-ORL-36, 2013 WL 6571558, at *12 (M.D. Fla. Dec. 13, 2013) (finding a legitimate business interest in customer goodwill because plaintiff “spent significant amounts of time and money creating commercial goodwill and cultivating prospective business relationships with potential clients.”); Winmark Corp. v. Brenoby Sports, Inc., 32 F. Supp. 3d 1206, 1223 (S.D. Fla. 2014) (finding a legitimate business interest in customer goodwill because plaintiff “spent a significant amount of time and money for the promotion and goodwill associated with [the business].”); Ansaarie, 252 So. 3d at 290 (finding a legitimate business interest in customer goodwill because plaintiff proved it made “substantial investments in developing its existing patient, client, and customer base as well as patient, client and customer goodwill in Putnam county.”).
However, Florida courts have not expressly stated that professional service providers must prove that it invested a significant amount of time and money to build and preserve a patient or client base to enforce a non-compete to protect goodwill. Therefore, it is likely that a professional service provider can establish a legitimate business interest in goodwill without proving it invested a significant amount of time and money. Therefore, whether a professional service provider has a legitimate business interest in goodwill will depend on the facts of the case.
Even if a professional service provider proves the existence of a legitimate business interest in its goodwill, it must also prove that the contractual restraints are reasonably necessary to protect those interests. Fla. Stat. § 542.335(1)(c). Whether or not a non-compete is reasonably necessary also depends on the facts of the case. When making this determination, the court will analyze whether the restraints on time and area are reasonable.
The courts will presume that a non-compete with a time restraint of less than six-months in duration is reasonable, if the non-compete is against a former employee, agent, or independent contractor. However, if the time restraint is more than two years, the courts will presume the time restraint is unreasonable. Fla. Stat. § 542.335(1)(d). Florida courts have found that a time restraint of two years is reasonably necessary to protect an established legitimate business interest. Ansaarie, 252 So. 3d at 291 (holding that the two-year time restraint was reasonably necessary to protect its interests because the former doctor did not challenge the time restraint); Southernmost Foot & Ankle Specialists, P.A. v. Torregrosa, 891 So. 2d 591, 594 (Fla. 3d DCA 2005) (holding that the two-year restraint on time was reasonable).
With regard to restraint on area, the statute does not provide a presumption of what is reasonable or unreasonable. A reasonable restraint on area can vary significantly depending on the facts of the case. However, if a restraint on area is found to be unreasonable, the court has discretion to reduce the restraint based on the evidence and facts of the case. Id. at 596 (holding that the trial court’s reduction of the area restraint from all of Monroe county to “outside of the five miles of the Key Largo/Tavernier line and all the way down to five miles outside of Marathon,” was properly within the trial court’s discretion).
If the professional service provider is able to prove that the restraints are reasonably necessary, the burden will shift to the person opposing enforcement. The person opposing enforcement will have to prove that the restraint is overbroad, overlong, or otherwise not reasonably necessary to protect the established legitimate business interest. If the person opposing enforcement is successful, the court may modify the restraint and grant only the relief reasonably necessary to protect the established legitimate business interest. Fla. Stat. § 542.335(1)(c).
What is The Remedy For a Violation of a Non-Compete?
In the event the court concludes that the non-compete is valid and enforceable, and the person opposing enforcement violated the terms of the non-compete, a presumption of irreparable injury to the professional service provider is created. The court will usually enforce the non-compete by ordering a temporary or permanent injunction. Fla. Stat. § 542.335(1)(j). In addition, the court may award attorneys’ fees, lost profits, actual damages and/or liquidated damages.
Florida recognizes customer, patient, or client goodwill as a legitimate business interest warranting protection. Professional service providers can enforce non-competes based on protection of goodwill if they can prove the existence of a legitimate business interest, and that the restraints are reasonably necessary to protect that legitimate business interest. Whether a professional service provider can successfully enforce the non-compete depends on the facts of their case.