Noncompete Referral Sources in Florida
For a non-compete clause to be legally valid in the State of Florida, it must protect a legitimate business interest. Likewise, Florida courts have held that if a covenant is a substantial restraint on trade, the court will not enforce it. Recently, the Florida Supreme Court clarified whether referral sources are legitimate business interests that a non-compete contract can protect.
Noncompete and Legitimate Business Interest
But, what is a legitimate business interest? This is a question that many people ask. The term “legitimate business interest” means a genuine, independent, and legitimate purpose. Valid business interests include anything which is significant to your business. The focus of your program must be on legitimate commercial interest and not to mislead.
The following are all considered business interests:
- Trade secrets
- Valuable confidential information that is not considered a trade secret
- Relationships with specific prospective or existing customers, patients, clients, etc.
- Customer, patient, or client goodwill associated with:
- An ongoing business or professional practice
- A business-important geographic location
- A specific marketing or trade area
- Specialized training for a company’s employees
Noncompete Referral Sources Ruling
The Florida Supreme Court ruled that referral sources are not automatically excluded as legitimate business interests because the statute specifies only those acceptable interests but does not exclude other types of interests. “It is not necessary, however, to point directly to a statute or regulation prohibiting a particular interest in order to demonstrate that the claim is not legitimate. If interest is so plainly unethical or illegal … then it can be considered not.
As they dictated, rather than determining whether referral sources are a legitimate business interest using an industry-wide standard, the proper approach is to make case-by-case determinations in light of all relevant facts.
More specifically, the Supreme Court decided that referrals in the home health care industry are protectable business interests because they are the most important means of obtaining new customers and because misappropriation of such referrals gives competitors an unfair advantage.
What Does This Mean For Your Business?
Have you developed a great customer-service model that has increased the sources of your referrals? Are you concerned about what would happen to your business if competitors were to offer more attractive financial benefits and non-financial perks to their employees?
Some businesses, particularly those in or not in the home health service industry, may see this decision as favorable for protecting referral sources via noncompete contracts. However, the decision will not necessarily have implications in all of these situations.
It depends on whether you can prove that the source of information had reason to know of the violation and still disclosed it. But courts are likely to stay close to the Supreme Court’s industry-focused, fact-specific inquiry rather than adopt a broad approach and risk undermining the statute’s intent.
This means that, much like any other case, you and your company should have the backing of an experienced legal team. Our experts at Dowd Law would be more than happy to act to protect your interests.