“Legitimate Business Interests” Justifying Non-Competes Are Not Limited to those Listed in Statute 

Intellectual Property Alert

October 17, 2017

On September 14, 2017, the Florida Supreme Court, in White v. Mederi Caretenders Visiting Services of S. E. Florida, LLC, et. al.,  2017 WL 4053930, 42 Fla. L. Weekly S 803a (Fla. 2017) issued a ruling finding that referral sources in the home health services industry can qualify as “legitimate protectable business interests” under Florida Statute, Section 542.335 in order to justify a restrictive covenant (non-compete, non-disclosure, or non-solicitation agreements) even though “referral sources” are not enumerated in the statute. Providing fodder for future litigation, the Florida Supreme Court reminded employers that restrictive covenants provided for by statute are an exception to the general rule that restraints on trade are illegal. The court held that specific facts must be presented and evaluated on a case-by-case basis, beyond the desire to avoid ordinary competition, in order to warrant protection.

Home health care providers (HHC’s) supply skilled nurses, physical therapists, and other home health service practitioners for homebound patients. HHC’s obtain most of their business from referrals from doctors and other healthcare professionals. HHC’s employ marketing representatives whose primary roles are to establish relationships with referral sources in the hope of securing future patient referrals.

The Florida Supreme Court acknowledged prior case law finding that prospective unidentifiable future customers are not a “legitimate business interest” under Florida law. However, the court distinguished them from identifiable referral sources. The court emphasized that the enumerated legitimate business interests in the statute are expressly non-exclusive since the statute provides that “the term legitimate business interests includes, but is not limited to” the enumerated items. The court found that the five enumerated legitimate interests listed in the statute revealed “only one discernable similarly: preventing unfair competition by protecting crucial business interests.” Hence it held: “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 content specific.” The decision covered two cases on appeal White and Hiles. Both were remanded for reconsideration of the facts in light of the decision.

Restrictive covenants in employment contracts are governed by state law. In Florida, the “legitimate business interests” required under the statute permitting restraints on trade are not limited to the enumerated list but may include health services providers referral sources. The states vary in their statutory schemes from those on one end of the spectrum barring non-compete agreements with employees, to those leaning more heavily toward protection of employer interests. “Public policy” is interpreted quite differently from state to state as well. Employers and employees should be aware of the laws that govern their agreements and consider the choice of law provisions in their agreements, in light of the varying interpretation of their rights from state to state. 

Related Practices

To discuss any questions you may have regarding the issues discussed in this Alert please contact Thomas Dye at tdye@cozen.com or (305) 397-0806.