Non-compete Agreements and Protection of Referral Relationships

Anne W. Chapman - Blalock Walters Attorney

Anne W. Chapman Esq., Labor & Employment Law

It is not uncommon for employers to require employees to sign agreements that contain non-competition provisions prohibiting employees from engaging in certain activities post-employment. The ability of an employer to enforce such provisions is not entirely clear under Florida law and is usually fact specific.

Recently, the Florida Supreme Court issued an opinion in White v. Mederi Caretenders Visiting Services of Southeast Florida (Case No. SC 16-28) and Americare Home Therapy, Inc. v. Hiles (SC 16-400) providing some clarification for employers concerning the enforceability of non-compete provisions related to the solicitation of referral sources. In doing so, the Florida Court resolved a conflict between the state appellate courts and held that referral sources can be a protectable business interest under Florida law.

Non-compete agreements are permissible in Florida and are governed by Florida Statute §542.335 which provides the conditions that must be met for enforcement. In addition to several other requirements, including that the agreement must be in writing and signed by the party against whom enforcement is sought, the agreement must protect a legitimate business interest. This means that not every technical violation of a written non-compete agreement is actionable (i.e. you cannot simply prohibit any and all employees from working for a competitor). Florida’s non-compete law is not meant to prohibit competition per se. Rather, as recognized by the Florida Court, it is meant to prohibit unfair competition which requires a showing of facts beyond the ordinary competition. For example, such a showing could be made by demonstrating that the employee by virtue of his position gained information or contacts during his employment that could be unfairly used in new employment.

As a result, an employer must demonstrate that the non-compete provision it is seeking to enforce. Florida Statute §542.335(1)(b) provides a list of examples of legitimate business interests, including trade secrets, confidential information, substantial relationships with prospective or existing customers, patients or clients, customer goodwill and extraordinary training that are protectable under the law.

This list of legitimate business interests is intended to be illustrative and not exhaustive. Even so, in the Hiles v. Americare Home Therapy case, the lower appellate court held that a non-compete agreement could not be used to prohibit a home health liaison from soliciting referrals from her former employer’s referral sources (including physicians and medical facilities) on behalf of her new competing employer. The appellate court reached this decision despite the fact that during her employment with Americare, Hiles’s primary responsibility was to solicit business from these referral sources and Americare facilitated her developing relationships with these referral sources. In contrast, another Florida appellate court reached a contrary decision and held that referral sources in the home health agency context could be a protectable legitimate business interest. As a result of this Florida Supreme Court addressed the conflict and issued its opinion in September 2017.

In addition to holding that referral sources can be a protectable legitimate business interest under Florida law, the Florida Court provided some guidance on the issue. The Court noted that the inquiry of legitimate business interest is “inherently a factual inquiry” that is “heavily industry and context specific.” It further stated that while an interest in a referral source for specialists physicians may be a legitimate business interest, this will not necessarily always be the case. The Court noted that the situation is likely different where a referral is made to a “business” or “practice” as opposed to an individual doctor. Thus, where the referral is based on an assessment of an individual, the analysis is quite different than when the referral is to a company. While there remains uncertainty concerning the enforceability of non-compete agreements related to referral sources, it is clear that the prior argument that referral sources cannot be a legitimate business interest is no longer a defense to enforcement of non-competition agreements.

For more information on non-compete agreements or other labor and employment matters, please contact Anne Chapman at 941.748.0100 or achapman@blalockwalters.com.