Customers and Customer Contacts

Customers and Customer Contacts

We have significant experience in matters involving questions about whether protectable “customer contacts” exist or whether an individual is a particular “customer” of a business in the context of a non-compete agreement. The answers to these types of questions may have a significant impact on a business’s ability to enforce a non-compete agreement. It is therefore imperative to develop an accurate understanding of the principles behind “customer contacts” as a protectable interest under Missouri law.

Who is a “Customer” and what are “Customer Contacts”?

Missouri courts have recognized that employers have an interest in retaining customers after the end of a particular employee’s employment. See, e.g., Brown v. Rollet Bros. Trucking Co., 291 S.W.3d 766, 774 (Mo. Ct. App. 2009). Courts generally protect customer contacts because goodwill developed by an employee with specific customers on behalf of the employer can be essential to a company’s success. See id. “An express agreement not to compete may be enforced as to employees having substantial customer contacts. It is not necessary to show that there is a secret customer list.” Osage Glass, Inc. v. Donovan, 693 S.W.2d 71, 75 (Mo. banc 1985).

Missouri courts look at the quality, frequency, and duration of an employee's interactions with the employer’s customers to determine whether a protectable interest in “customer contacts” exists. See Healthcare Services, 198 S.W.3d at 611. This is because the purpose of a non-compete is to prevent a situation in which customer contacts developed by an employee solely by virtue of his or her former employment can be used to the former employer's disadvantage. See id.

Missouri courts view a “customer” in the non-compete context as one who repeatedly has business dealings with a particular business. Kessler-Heasley Artificial Limb Co., Inc. v. Kenney, 90 S.W.3d 181, 186 (Mo. Ct. App. 2002). An employer attempting to enforce a restrictive covenant “must have a stock of customers who regularly deal with the employer,” or there is no protectable interest. Id. If the customers only use the employer’s services on a single occasion or there is little repeat business, the employer likely does not have a protectable interest in said customer(s). Id.

The determination of the nature and extent of customer contacts is a factually intensive process commonly requiring detailed legal analysis under Missouri law. Each employee typically has varying contact with, and varying influence over, different customers. This is significant because it could render an otherwise “reasonable” non-compete agreement “unreasonable” if the employee is not privy to contact with certain customers covered by the non-compete agreement.

In Emerson Electric Co. v. Rogers, the Eighth Circuit analyzed whether the former employer—Emerson—possessed a protectable interest in its customers that supported enforcement of a non-compete agreement against a former sales representative employee. 418 F.3d 841, 842-43 (8th Cir. 2005). In that case, the defendant was a former sales representative of Emerson who sold ceiling fans to retailers throughout the southeast United States. Id. at 842-43. Several years prior to his departure, the employee had signed a non-compete agreement with Emerson that prohibited him from working in the same sales territory for any company selling products competitive with those manufactured by Emerson. In 2004, the sales representative terminated his relationship with Emerson and immediately began to sell ceiling fans of a competitor in the same territory.

Emerson succeeded in obtaining injunctive relief against its former salesman in federal district court and the Eighth Circuit affirmed. On appeal, the former salesman argued, among other things, that the non-compete agreement was unenforceable because Emerson did not have a protectable interest in customers with whom the salesman had worked before his employment with Emerson and in customers who had never purchased Emerson products before. The Eighth Circuit rejected his argument under the circumstances in that case because, among other things, the salesman had "acquired knowledge regarding [Emerson’s] sales practices, pricing strategies, and marketing mechanisms, and Emerson ha[d] a legitimate interest in restraining him from using that knowledge in the immediate future to lure away its customers.” Id. at 845.

More recently, in Healthcare Services of the Ozarks v. Copeland, the Missouri Supreme Court addressed the issue of customer contacts in the healthcare context. 198 S.W.3d 604 (Mo. banc 2006). Two former employees provided home healthcare for patients of the plaintiff-employer, Healthcare Services of the Ozarks. As a condition of their employment, they signed non-compete agreements. Both eventually left Healthcare Services to join a competing business. Healthcare Services filed a lawsuit to enforce its non-compete agreements and prevent its former employees from competing.

The Missouri Supreme Court held the former employer established a protectable interest in its patient base, just as customers are protectable in a business context. Copeland, 198 S.W.3d at 613. At trial, both former employees conceded that, in the home health industry, a provider has an expectation of continued service to an individual patient until that patient no longer qualifies for services or dies. Id. The former employees also admitted that, in the home health industry, when an individual in-home nurse leaves one employer for another, patients will typically request their services be transferred to the nurse’s new employer. Id.

The former employees countered with evidence that they did not personally have influence over patients because they were managers or supervisor—not direct care givers. Id. However, the court ultimately concluded that the trial court had sufficient evidence to find a protectable interest in the patient base because, among other things, the former employees had relationships with the former employees who they supervised and managed, knew the salary structure of the former employer, and were in a position to use this knowledge and influence to recruit the former employer’s employees. Id.

In sum, non-compete cases on customer contacts are fact-intensive disputes that require detailed evidence and argument. Hiring experienced and knowledgeable counsel in non-compete matters can make the difference.

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Dolley Law, LLC are available at (314) 645-4100 and to set up a confidential consultation to discuss your non-compete issue.

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