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Referral Sources Can Be Protected in a Non-Compete – Maybe this Will Apply to Your State Courts?

The Florida Supreme Court recently held that home health referral sources can be a protected legitimate business interest under Florida’s non-compete statute. With or without a controlling statute, this idea may apply in other states?
Home health care companies provide skilled nursing, physical therapy, and other home health services to homebound patients. To attract patients, they seek referrals from multiple healthcare providers such as physicians and hospitals. These companies employ marketing representatives to develop relationships with these referral sources in hopes of obtaining clients.

White, one of the defendants, was an employee of Caretenders. Upon commencing her employment, she signed a non-compete agreement that prohibited her from working for or soliciting referrals for any competing home health care company in two specific counties for one year after leaving Caretenders. White became unsatisfied with Caretenders, left, and took a job with Omni Home Health, a direct competitor of Caretenders in the counties her non-compete prohibited. She then solicited the same referral sources that she had when she was at Caretenders. White argued her non-compete was unenforceable because referral sources are not legitimate business interests specifically defined under Florida’s non-compete statute.

Hiles, the other defendant, was an employee of Americare. Upon commencing her employment, she signed a non-compete, non-solicitation, and non-disclosure agreement. The non-compete prohibited her from working for any competing health care company within 50 miles of any referral source that she solicited at Americare for one year after termination of employment. For that one year period, she was also prohibited from soliciting any referral source that any Americare representative had solicited for Americare during the previous year. She left Americare and went to work for Doctor’s Choice, a director competitor. However, before her departure from Americare, she forwarded multiple referral target lists to her personal e-mail account. She then solicited her previous Americare referral sources while working for Doctor’s Choice.

In Florida, a contract providing restrictions on competition must involve a legitimate business interest as defined by statute to be enforceable. A legitimate business interest is then defined by statute and five items are listed such as trade secrets. Referral sources is not part of the list. The Supreme Court, however, reasoned that it was a protectable interest because the statute was not designed to contain an exhaustive list and because to do otherwise would defeat the purpose of non-competes – to protect an employer’s business.

This decision overrules a 2006 Fifth District Court of Appeal decision in Florida Hematology & Oncology v. Tummala, which held protecting referral sources was contrary to state law because it protected relationships with unidentified prospective patients.

While we offer no opinion on the meaning of this case in Florida, it does show there is an argument, accepted by some courts, that referral sources and prospective clients may be a protectable interest. While many employers feel non-compete and non-solicitation agreements are not worth the paper on which they are written, there is hope. Of course, you must check your state law and seek competent counsel to see if such an argument may work in your state.

Brody and Associates regularly provides counsel on non-competition agreements and employment agreements in general. Please review each individual attorney’s profile to identify the States in which they are admitted to practice law. This article is not intended as an opinion on Florida state law. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.