A recent Florida appellate court decision has created additional uncertainty concerning the treatment of referral relationships under Florida’s non-compete law. Under Florida law, a non-compete cannot simply be enforced to eliminate competition per se. Fla. Stat. § 542.335(b)(1). Rather, Florida law provides for enforcement of such agreements only when they are reasonably related to the protection of a “legitimate business interest.”
The statute provides a list of examples of legitimate business interests including the protection of trade secrets, confidential business information, relationships with specific customers, patients or clients, customer goodwill and extraordinary or specialized training. However, the statute provides that the list is not exhaustive, so courts may consider other “legitimate business interests” in determining whether to enforce a non-compete. In several non-compete cases over the years, Florida courts have been asked to determine whether a business’s relationships with referral sources constitute a “legitimate business interest” for purposes of enforcing a non-compete.
Until recently, the leading case on this issue was Florida Hematology & Oncology v. Tummala, 927 So.2d 135 (Fla. 5th DCA 2006). In Tummala, the appellate court refused to issue an injunction against an oncologist practicing medicine within a geographic radius prohibited by the language of his employment agreement. The former employer argued that as a specialty medical practice, much of its business comes from referring physicians and, further, that the relationships Dr. Tummala had developed with referring physicians were the result of his employment with the practice and, therefore, constituted a legitimate business interest for purposes of enforcing the non-compete. The court noted that although the relationships with referral sources in this case were clearly important to the former employer’s business, “what referring physicians supply is a stream of unidentified prospective patients with whom [the former employer] had no prior relationship.” The court went on to note that referring physicians testified at the trial that they refer to individuals and not to a business or medical practice as a whole. On this basis, the court rejected the former employer’s argument that referral sources could be a legitimate business interest and refused to issue the injunction against Dr. Tummala.
Other cases in Florida, most prominently, Southernmost Foot and Ankle Specialists, P.A. v. Torregrosa, 891 So.2d 591, 593 (Fla. 3d DCA 2004), have relied, at least in part, on referral sources as a basis to enforce non-competes. None of these cases, however, matched the Tummala court’s level of analysis regarding referral sources as a legitimate business interest.
Until now. In August 2015, in the case of Infinity Home Care, LLC and Sylvie Forjet v. Amedisys Holding, LLC, the Fourth District Court of Appeal squarely held that referral relationships can be legitimate business interests for purposes of enforcing a non-compete in Florida. The former employer in this case is a home health provider which, like a specialty medical practice, gets most of its patients as a result of referrals. In contrast to the Tummala court, however, the Amedisys court held that referral sources are the “lifeblood” of the former employer’s business and “are not the same as relationships with unidentified prospective patients.”
There are several important factual distinctions between Tummala and Amedisys: (i) the non-compete agreement in Amedisys specifically mentioned referral sources, while the one in Tummala did not; (ii) Ms. Forjet’s job description was to market to and solicit referral sources, while Dr. Tummala was a physician; and (iii) Amedisys established that a drop in revenue was specifically tied to Ms. Forjet’s marketing efforts on behalf of its competitor. Nevertheless, the Amedisys opinion has created great uncertainty as to whether referral sources are a legitimate business interest entitled to protection under Florida law. This issue has applicability in all industries and not just in the health care context.
At this point, only the Florida Supreme Court can resolve the conflict between Tummala and Amedisys. The Amedisys court has asked the Florida Supreme Court to do so, but the Supreme Court has not yet taken the case. Until that happens, the current state of the law in Florida is unsettled as to the critical issue of whether referral sources can be a legitimate business interest for purposes of enforcing a non-compete. Parties desiring to include restrictive covenants in their agreements should be aware of this uncertainty and carefully examine the justifications for those restrictive covenants.
For more information, please contact Anne W. Chapman, Labor and Employment attorney, at email@example.com.