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Are Referral Sources a Legitimate Business Interest and thus, Capable Of Protection Under a Non-compete? The Law in Florida Remains Unclear.

The law in Florida remains unclear as to whether a business can protect their referral sources through a non-compete agreement.

In Hiles v. Americare Home Therapy, Inc., 2015 WL 9491847, the Fifth District Court of Appeals affirmed their decision in Florida Hematology & Oncology v. Tummula, 927 So.2d 135 (Fla. 5th DCA 2006), and held that referral sources do not qualify as a legitimate business interest under Fla. Stat. § 542.335 for the purposes of enforcing a non-compete. In Hiles, the referral sources were unidentified prospective patients and the corresponding referral physicians. The Fifth DCA stated that referral sources “merely act as a conduit to supply these unidentified prospective patients to the home healthcare agencies” and therefore, employers are not permitted to use non-competes to protect their referral sources. The Fifth DCA argued that holding otherwise, would circumvent the directive of Fla. Stat. § 542.335, which does not recognize prospective patients as a legitimate business interest.

However, the decision in Hiles is in direct conflict with a recent decision in the Fourth District Court of Appeals in Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, 180 So. 3d 1060 (Fla. 4th DCA 2015). In this case, the Fourth DCA held that referral sources are a legitimate business interest and thus subject to protection through a non-compete. The Fourth DCA did not agree with the Fifth DCA’s narrow construction of Fla. Stat. § 542.335, arguing that Fla. Stat. § 542.335 does not explicitly exclude referral sources as a legitimate business interest and accordingly, it would be improper to read such an exclusion into the statute. Interestingly, in coming to its conclusion, the Fourth DCA specifically noted that the non-compete at issue in this case specifically mentioned “referral sources” as a valuable business interest, and that the employee at issue was hired for her experience and contacts, was encouraged to maintain said contacts, and was compensated accordingly.

Thus, until the Florida Supreme Court rules on this issue, or the Florida legislature amends the statute to expressly include “referral sources” as a legitimate, protectable business interest, employer’s must be particularly cognizant of the language used in their non-competes to ensure that “referral sources” are specifically mentioned, and of the fact that their ability to protect said referral source will ultimately depend on the location of their business and the court in which they seek enforcement of the non-compete. However, employers should ensure that their non-compete agreements are still carefully drafted to encompass the broadest protection available.

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