The law in Florida on noncompete contracts is clear: If a restrictive covenant is not supported by a legitimate business interest, the covenant is unenforceable.
What is a legitimate business interest? Under section 542.335, Florida Statutes, the term includes, but is not limited to:
- Trade secrets
- Valuable confidential business or professional information that isn’t a trade secret
- Substantial relationships with specific prospective or existing customers, patients, or clients
- Customer, patient, or client goodwill associated with:
- An ongoing business or professional practice
- A specific geographic location
- A specific marketing or trade area
- Extraordinary or specialized training
Recently, the Florida Supreme Court answered a question on which two of the state’s district courts appeal were split: Are referral sources a legitimate business interest that can be protected by a noncompete contract?
In White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, 42 Fla. L. Weekly S803a (Fla. Sept. 14, 2017), which involved a home health services business, the Florida Supreme Court held referral sources aren’t automatically excluded as legitimate business interests because, according to the plain language of section 542.335, acceptable business interests are “not limited to” those listed in the statute. Indeed, “[t]he statute was never designed or intended to be an exhaustive list.” Rather, determining whether referral sources (or arguably any other asserted business interests not listed in section 542.335) are a legitimate business interest requires case-by-case “fact- and industry-specific determinations[.]”
The Supreme Court concluded that in the home health services industry, referral sources may be protectable business interests because, among other things, referrals are the predominant –
if not sole – means of obtaining patients, “are somewhat analogous to customer goodwill, which is expressly protected by” section 542.335, and, if misappropriated, could give unfair advantage to a competitor. Further, “there is an indispensable relationship between referral sources and [home health care providers’] undisputed legitimate business interests in relationships with patients” which is protected by section 542.335.
What does the Mederi Caretenders decision mean for businesses not in the home health service industry seeking to protect referral sources via noncompete contracts?
It depends. Section 542.335 doesn’t exclude referral sources. But courts are more likely to stay close to the Supreme Court’s industry-focused, fact-specific inquiry than to adopt a broad approach and risk undermining the intent of the statute, which is to protect against restraints of trade and competition.