In a new case focusing on employment noncompete agreements in the home health care (HHC) industry, the Florida Supreme Court unanimously held that HHC referral sources can be a protected legitimate business interest under Fla. Stat. 542.335, sufficient to support a restriction on competition in a contract.

The Sept. 14, decision White v. Mederi Caretenders Visiting Services of Southeast Florida, is anticipated to have even broader implications beyond the HHC industry because, in Florida, a restrictive covenant contained in an employment contract must involve a “legitimate business interest,” as defined by the statute, to be enforceable. The definition of “legitimate business interest” under Fla. Stat 542.335 includes, but is not limited to:

• Trade secrets, as defined in s. 688.002(4);
• Valuable confidential business or professional information that otherwise does not qualify as trade secrets;
• Substantial relationships with specific prospective or existing customers, patients, or clients;
• Customer, patient or client goodwill associated with: an ongoing business or professional practice, by way of trade name; trademark, service mark, or “trade dress”; a specific geographic location; or a specific marketing or trade area.
• Extraordinary or specialized training.

The court explained that because the statute protects more business interests than those specifically listed, courts “must necessarily engage in fact and industry–specific determinations” when considering “legitimate business interests” that are not specifically enumerated among those in the statute's non-exhaustive list. Stated differently, the court held that “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.”

In this particular HHC case, it was undisputed that two former HHC employees (in two separate cases consolidated for Supreme Court review) engaged in conduct in violation of their respective noncompete employment contracts by working for direct competitors of their prior employers during the relevant time periods precluding such employment.

How the System Works

HHC companies provide skilled nursing, physical therapy and other home health services to homebound patients, seeking referrals from patients' health care providers. Patients typically seek an HHC provider after a referral from a physician, hospital or skilled nursing facility. Thus, the specific referral source varies among physicians, case managers and referral coordinators.

As a result, HHC providers employ marketing representatives whose role is to cultivate relationships with referral sources, hoping to secure future patient referrals. In this regard, the court noted: “The importance of referrals to HHCs cannot be overstated. One HHC representative testified that without marketing representatives, 'his company would no longer be viable.' To facilitate their business, HHC providers compile internal databases of referral source preferences, strategies, and procedures, which the representatives utilize. Just general nominal information about referral sources is publicly available and known among HHCs.”

The court therefore reasoned that referral sources, “HHC's most important business asset,” encompass the legitimate business interests listed in the statute, i.e., “for HHCs, there is an indispensable relationship between referral sources and their undisputed legitimate business interests in relationships with patients protected by” section 542.335. Recognizing that the statute is designed to “strike a delicate balance between legitimate business interests and a person's inalienable right to work,” the court concluded that HHC referral sources “may be a protected legitimate business interest … depending upon the context and proof adduced,” referring to the fact-based inquiry the court now requires.

This decision is especially significant because the court acknowledged that, “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 … 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.”

In projecting the potential impact of a particular noncompete, prospective and current employees must be prudent in their understanding of what industry-specific evidence may exist, pertaining to referral sources, that could lead a court to uphold and enforce the restrictive covenant as a legitimate business interest. Conversely, employers and their attorneys must work together to ensure their employment agreements are drafted to protect their referral sources where same are an important business asset.

Mitchell Green and Robert Buchsbaum are partners at Kramer, Green, Zuckerman, Greene & Buchsbaum in Hollywood.