Dec 29 2015

Florida Non-Compete Agreements: Is A Referral Source A Legitimate Business Interest?

By: A. Starkey DeSoto

Restrictive covenants in an employment contract, such as non-compete or non-solicitation clauses, are disfavored under Florida law.  Generally, Florida is a right-to-work state, and Florida courts have explained that any contract that attempts to restrain or limit a person’s right or ability to work must be strictly construed.  However, that does not mean that restrictive covenants limiting or prohibiting post-employment competition are not enforceable.  To the contrary, when a restrictive covenant is written in compliance with Florida law, it can be a very powerful tool for an employer to protect its legitimate business interests.

500_F_73789644_SZC7X8lEsB2TTltieaUl8iHTbY75WHMoSection 542.335 of the Florida Statutes provides that restrictive covenants prohibiting or restricting competition must be: (a) reasonable in time, area, and line of business; and (b) designed to protect the employer’s legitimate business interests.  While the Statute defines “legitimate business interests” as including (among other things) trade secrets, substantial relationships with specific prospective or existing customers, and specialized training, questions often arise as to whether the interests that the employer is trying to protect are actually “legitimate” under Florida law.

When interpreting and applying Section 542.335, one issue that occasionally arises is whether “referral sources” qualify as legitimate business interests entitled to protection in an employee non-competition or non-solicitation agreement.  While this issue is not entirely settled in Florida, a recent opinion by the Fourth District Court of Appeal (i.e., the appellate court presiding over Broward County and Palm Beach County) provides some insight.

In Infinity Home Care, LLC v. Amedisys Holding, LLC, 40 Fla. L. Weekly D 1929 (Fla. 4th DCA, Aug. 19, 2015), the Fourth District held that referral sources for home health services are a legitimate business interest entitled to protection under a non-compete and non-solicitation clause in an employment contract.  In so holding, the Court observed that the home health care industry depends on referral sources as a substantial source of business, and that the former employee was specifically hired because of her substantial relationships with particular referral sources.  Thus, the Court concluded that, with respect to the home health care industry, referral sources are protectable legitimate business interests.

Although the Infinity Home Care, LLC case specifically addressed Section 542.335 within the context of the home health services industry, the Court’s reasoning in that case can be applied to many other industries to determine whether a “referral source” is likely a legitimate business interest that is the proper subject of a non-competition/non-solicitation agreement. For example, where the industry relies on referral sources as a substantial source of its business, or where the employee was specifically hired, in large part, because of his or her connections, “referral sources” are likely a legitimate business interest that may be afforded protection under Section 542.335.

If you need clarification regarding whether a non-compete/non-solicitation clause in a Florida employment contract is enforceable in Broward, Miami-Dade, or Palm Beach County, please call our law firm in Fort Lauderdale at (954) 764-6766 to schedule a consultation with a Broward County business lawyer.

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