Florida Non-Competes: State Supreme Court Holds That Home Health Service Referral Sources May Be Protected Business Interests

The Florida Supreme Court recently issued an opinion regarding non-competition agreements that is directly applicable to health care businesses, but the opinion will also affect many different industries.  See White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, 2017 WL 4053930, 42 Fla. L. Weekly S803a, Case Nos. SC16-28 and SC16-400 (Fla. Sept. 14, 2017).  The decision is generally pro-employer.

In White, which consolidated two pending appeals regarding enforcement actions brought by home health service companies against former employees for violating their non-competition agreements by soliciting patient referral sources, the Florida Supreme Court held the following:  “Accordingly, we hold that section 542.335, Florida Statutes, is non-exhaustive and does not preclude the protection of referral sources; hence, home health service referrals may be a protected legitimate business interests depending on the context and proof adduced.”  Id. at *10.  This holding is directly relevant to many health care non-compete cases.

The more notable part of the opinion for its breadth of impact is the Court’s determination that the phrase “legitimate business interest” is non-exclusive and may be supplemented by trial courts depending upon the facts of each case.  The Court held the following: “However, because the statute protects more business interests than those specifically listed, courts must necessarily engage in fact—and industry—specific determinations when construing non-enumerated interests.”  Id. at *7.  This part of the opinion is important because, in order to have an enforceable non-competition agreement in Florida, the plaintiff must show that the restrictive covenant is based upon a “legitimate business interest” as defined in section 542.335(1)(b), Florida Statutes.  The phrase is expressly defined to include matters such as “trade secrets” and “substantial relationships with specific prospective or existing customers, patients, or clients”, but the question faced by the Florida Supreme Court was whether matters not specifically included in the statutory definition could also be deemed legitimate business interests sufficient to support a restrictive covenant.

This means that trial courts will have the opportunity—and the burden—to factually conclude that non-enumerated “legitimate business interests” satisfy the relevant statute.  The Supreme Court explained its conclusion:

In light of the foregoing, we conclude 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. Certain industries, such as home health services, present special facts where protecting referral sources may be necessary to prevent unfair competition. See Passalacqua, 844 So.2d at 795. Consequently, the determination of whether an activity qualifies as a protected legitimate business interest under the statute is inherently a factual inquiry, which is heavily industry—and context-specific. See Infinity Homes, 180 So.3d at 1065-66. As demonstrated, the subject statute protects a plethora of protected legitimate business interests far beyond those explicitly listed in the subject statute. Home health service referral sources can be counted among those protectable interests depending on the circumstances.

Sitting in a Tallahassee courthouse with a frozen record before us, we cannot precisely define the exact parameters of what constitutes a “legitimate business interest” in the myriad of commercial disputes that may arise across this diverse State. Instead, trial courts are well positioned to construe the phrase to determine the legitimacy of a particular business interest—in conjunction with the industry context and evidence adduced. What is clear, however, is that the statute is not an exhaustive list of protected business interests. A plain reading of the statute mandates our holding. Nevertheless, the inevitable paradox between protecting employers’ legitimate business interests and allowing employees to restrict their own right to work bears out the necessity for a context-based statute such as section 542.335. For instance, an interest in referral sources for specialist physicians may be a legitimate business interest, thus capable of protection in some circumstances and unprotected in others.

Id. at *9.

Thus, employers seeking to enforce non-competition covenants against former employees will now have an additional arrow in their quiver: even if the specific interest the employer seeks to protect is not enumerated by the relevant statute, the employer may argue that the industry-specific analysis mandated by White allows for protection.  This will likely lead to some creative arguments and interesting appellate law in the future.

 

Matthew J. Meyer is a Partner in our Florida office.