Executive Summary: On Thursday, September 14, 2017, the Florida Supreme Court held that referral sources can be valid legitimate business interests under Florida’s non-compete statute, potentially warranting enforcement of a restrictive covenant/non-compete agreement. In determining whether referral sources can be legitimate business interests, the Court closely analyzed the statute’s plain language and engaged in a fact- and industry-specific inquiry.
The Court analyzed whether referral sources can constitute legitimate business interests in two consolidated cases, both involving the home health care company industry – White v. Mederi Caretenders Visiting Services of Southeast Florida, No. SC16-28, and Americare Home Therapy, Inc. v. Hiles, No. SC16-400. The facts of both cases are remarkably similar.
In White, Mederi Caretenders Visiting Services of Southeast Florida (Caretenders), a home health care company (HHC), hired White as a marketing representative to solicit physicians and medical facilities for home health service referrals. White executed a confidentiality and non-compete agreement that precluded her from working in Martin and St. Lucie Counties for one year after termination. Subsequently, White resigned from Caretenders, began employment with a direct competitor, and solicited referral sources with whom she developed relationships while working with Caretenders. Caretenders sued to enforce White’s non-compete agreement, and the trial court entered summary judgment in White’s favor, finding that Caretenders did not have legitimate business interests in its referral sources. In entering summary judgment against Caretenders, the trial court relied on the Fifth District Court of Appeal’s decision in Florida Hematology & Oncology v. Tummala, 927 So. 2d 135 (Fla. 5th DCA 2006), which found that referral sources are not legitimate business interests under section 542.335 because the statute does not specifically identify referral sources as legitimate business interests. On appeal in White, the Fourth District Court of Appeal reversed the trial court’s summary judgment, found that Caretenders had legitimate business interests in its referral sources, and certified conflict with Tummala.
In Hiles, Americare Home Therapy, Inc. (Americare), an HHC, hired Hiles as a home health liaison to solicit referral sources. Hiles executed a non-compete agreement that prohibited her for one year from working with any competitor within fifty miles of any referral sources she or any other Americare employee solicited. These restrictions resulted in a 23 county non-compete for Hiles. Following her termination, Hiles joined a competitor and solicited the same referral sources with whom she cultivated relationships while working for Americare. Hiles, unlike White, transferred Americare’s confidential information, including its referral source list, to her personal email account. After the trial court entered an injunction in Americare’s favor enforcing the non-compete agreement, the Fifth District Court of Appeal reversed the trial court’s decision under Tummala and certified conflict with the Fourth District Court of Appeal’s decision in Infinity Home Care, LLC v. Amedisys Holding LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015).
In analyzing White and Hiles, the singular issue as framed by the Florida Supreme Court was “whether home health service referral sources can be a protected legitimate business interest under section 542.335, Florida Statutes (2016).” The concept of a legitimate business interest is critical to an employer’s ability to enforce a restrictive covenant/non-compete agreement because, under section 542.335, a restrictive covenant/non-compete agreement is not enforceable unless it is supported by one or more legitimate business interests. Although section 542.335(1)(b) identifies five specific legitimate business interests (i.e. trade secrets, confidential information, substantial relationships with customers, patients or clients, customer, patient or client goodwill, and extraordinary or specialized training), referral sources are not one of them. Several courts, such as Tummala, noting that referral sources are not specifically identified in the statute, have found that referral sources are not valid legitimate business interests. Other courts, such as Infinity Home, noted that the statute’s list of legitimate business interests is not exhaustive because the statute says that, “[t]he term ‘legitimate business interest’ includes, but is not limited to . . . .” The Florida Supreme Court, taking close note of this statutory language in its analysis, concluded that the statute allows for legitimate business interests other than those specifically enumerated in the statute. Thus, the Court held that “section 542.335(1)(b)3 does not preclude recognizing referral sources as protected legitimate business interests.”
The Florida Supreme Court’s finding in this regard does not mean that all employers will have legitimate business interests in their purported referral sources. Rather, the Florida Supreme Court stated that courts “must necessarily engage in fact- and industry-specific determinations when construing non-enumerated interests.” Thus, the fact that the Court found these HHC entities had legitimate business interests in their referral sources, which were critical to their HHC businesses, does not mean that referral sources will constitute legitimate business interests in all contexts. Rather, courts must closely analyze the facts of the case, the importance of the referral sources to the business, the nature of the industry, and the investment the employer has made in cultivating its referral source relationships.
The Florida Supreme Court approved the decisions in White and Infinity Home and quashed the decision in Hiles. In so doing, the Florida Supreme Court has not only answered the question regarding whether referral sources may be legitimate business interests, but the Court has expressly found that the statute’s list of legitimate business interests is non-exhaustive and that practitioners may seek to prove the existence of other legitimate business interests to support the enforcement of a non-compete agreement. Employers should make certain that their agreements protect their referral sources (in addition to their clients, information, goodwill and training), particularly in those industries where referral sources are the lifeblood of the company’s existence. Employers should consult with their counsel to assure that their agreements adequately protect their referral sources.