Alerts and Updates

Relationships With Referral Sources May Be Protectable Under Florida's Non-Compete Law

September 19, 2017

Employers sought to enforce written non-compete agreements... arguing that the employees were violating written non-compete restrictions prohibiting the solicitation of referral sources.

The Florida Supreme Court recently decided in White v. Mederi Caretenders, etc., et. al. No. SC16-28 (Fla. Sept. 14, 2017), that home health referral sources may be a protectable legitimate business interest under the Florida non-compete statute, Fla. Stat. §542.335. The decision is important for the home health industry, and potentially for other industries that rely on referral sources for procuring clients, such as insurance, recruiting and other professional services businesses.

Background

In order to be enforceable against a former employee, a non-competition restriction must be supported by one or more legitimate business interests. In other words, the employee against whom the restriction will be enforced must have information or valuable relationships that the employee could leverage against the former employer in a new job with a competitor. The Florida non-compete statute defines “legitimate business interest” with a list that “includes, but is not limited to… trade secrets… valuable confidential business or professional information…” and “substantial relationships with specific prospective or existing customers…”  

The Florida Supreme Court heard an appeal of two consolidated cases—White and also Americare Home Therapy, Incv. Hiles, SC Appeal No. 16-400 (Fla. Sept. 14, 2017). The court was called into action to resolve a split in Florida’s circuit courts of appeal. The Fourth District Court of Appeal had previously held that referral sources were protectable. But, the Fifth District Court of Appeal had disagreed because referral sources are not included in the Florida statute’s list of protectable interests, and, according to that court, providing them protection would mean protecting relationships with unidentified, prospective patients.  

The Decision

Elizabeth White and Carla Hiles had been employed in the home health industry in marketing positions. In their jobs, they both had solicited home health referrals from various sources, such as physicians, hospitals and other medical facilities. Both women had developed relationships with these referral sources. After they left their jobs, both went to work for competitors and solicited the same referral sources they had solicited at their prior employers.

Their prior employers sought to enforce written non-compete agreements against them, arguing that the employees were violating written non-compete restrictions prohibiting the solicitation of referral sources. In defense, both employees argued that Florida law prohibits non-competition restrictions predicated on an employee’s relationship with referral sources.

The court analyzed the language of the Florida non-compete statute and noted that the statute does not foreclose the possibility of different legitimate business interests in addition to those enumerated in the statute. And, the court stated that “[a]ttempting to protect identifiable referral sources is distinct from claiming an interest in an unidentified patient base.” The court recognized the “indispensable” nature of referral sources in the home health industry, and noted that the purpose of non-compete agreements is “to protect an employer’s business.” The court concluded that “home health service referral sources may be a protected legitimate business interest within the meaning of section 542.335, depending upon the context and proof adduced.”

What This Means for Florida Employers

This case provides clarity regarding a previously confusing issue, and is of great value for employers in the home health industry, where referral sources are very important. The decision may also be useful for employers in other industries that rely on referral sources in the same way that home health employers do.

In addition, the court’s recognition that the Florida non-compete statute’s list of legitimate business interests is non-inclusive is important. Putting aside the issue of referral sources, employers may be able to identify other protectable interests upon which to base a non-compete agreement.

Finally, employers should note that the Florida Supreme Court stopped short of deciding that referral sources are always protectable. Instead, the court found that they “may” be protectable, depending on the facts. Thus, any employer wishing to take advantage of this decision should review, with counsel, their restrictive covenant agreements to ensure that the agreements expressly acknowledge the importance of referral sources and the need to protect them. 

For More Information

If you have any questions about this Alert, please contact any of the Miami or Boca Raton attorneys in our Employment, Labor, Benefits and Immigration Practice Group, attorneys in our Non-Compete and Trade Secrets Practice Group, or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.