Florida Supreme Court Provides Clarity on Healthcare Industry Non-Compete Agreements
September 21, 2017
Last week, the Florida Supreme Court, in White v. Mederi Caretenders Visiting Servs. of Se. Florida, LLC, issued a decision on two consolidated cases that addressed enforcement of non-compete agreements by home healthcare companies against their former marketing employees. The specific holding was that home healthcare company referral sources, such as physician groups and hospitals, can be a protectable business interest under Florida’s non-compete statute. The Court went on to provide guidance applicable to all industries by elaborating on which types of business assets can justify enforcing non-compete or non-solicit agreements.
Background of Florida Non-Compete Law. Whether a court in Florida will stop someone from violating a restrictive covenant (e.g., non-compete and non-solicit agreement) is a two-step analysis. The second step of the analysis is whether the individual actually breached the terms of the restrictive covenant at issue. Before that, however, the first step is for the court to determine whether the restrictive covenant is even enforceable under the Florida non-compete statute. To that end, Florida Statute, 542.335, which provides the legal framework for analyzing the enforceability of restrictive covenants in Florida, requires a company to show that it has one or more “legitimate business interest” in enforcing the restrictive covenant.
The statute also states that “the term ‘legitimate business interest’ includes, but is not limited to” several categories of protectable business interests, such as (i) trade secrets, (ii) valuable confidential information, (iii) substantial relationships with specific prospective or existing customers, (iv) certain types of customer goodwill, and (v) extraordinary or specialized training.
Court’s Holding. In White, the marketing representatives signed non-compete agreements that prohibited, among other things, soliciting their respective home healthcare companies’ referral sources for one year post-employment. In the home healthcare industry, referral sources, such as physician groups and hospitals, are the lifeblood of the business. That’s because those sources generally tell patients which home healthcare companies they should use. The marketing representatives in both cases eventually left to work for competing home healthcare companies and successfully solicited referral sources they had previously cultivated on behalf of their former employers. It was undisputed they breached the terms of their non-compete. They both argued, however, that their former employers did not have a legitimate business interest in preventing them from soliciting referral sources.
That argument was based, in large part, on the fact that Florida Statute, 542.335 does not specifically list referral sources as a legitimate business interest. The Florida Supreme Court unanimously rejected the marketing representatives’ arguments. The Court confirmed that the language “including, but not limited to” in the Florida non-compete statute implies that the list of legitimate business interest is non-exhaustive. Because of that, the statute did not prohibit the home healthcare companies from trying to protect their referral sources in the non-compete agreements. But the Court did not stop there. Importantly, the Court went on to stress that whether referral sources – or any other business asset – can justify enforceability of a non-compete or non-solicit depends on the facts and circumstances of each particular case. In other words, the enforceability of a non-compete or non-solicit agreement is always context-driven. As a result, the Court remanded the cases back to the trial courts for those courts to determine whether the particular referral sources at issue should be considered a legitimate business interest. That determination, in turn, must be based on the facts and circumstances of each case. Lessons Learned. The Court’s ruling provides two immediate takeaways for companies and individuals with non-compete or non-solicit agreements:
- First, with respect to the home healthcare industry, this ruling ends the debate on whether referral sources may be a protected business asset under Florida’s non-compete statute. This means employees in that industry, especially marketing and sales related employees, will have a harder time convincing Florida courts to disregard non-compete and non-solicit agreements that prohibit solicitation of referral sources.
- Second, for any company or individual with a non-compete or non-solicit agreement, the ruling is a powerful reminder that whether the agreement is enforceable must be determined on a case-by-case basis. A number of facts and circumstances should be analyzed in each case to determine the validity of an alleged legitimate business interest as applied to the individual at issue.