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eLABORate: Florida Supreme Court Endorses Employer's Right to Protect Industry-Specific Business Interests with Restrictive Covenants

September 21, 2017

Florida permits employers to enforce non-compete and non-solicitation agreements (restrictive covenants) as exceptions to a general prohibition on restraints of trade, so long as the restrictions fall within the parameters of Florida Statute 542.335. Among other limitations, the statute permits enforcement of restrictive covenants only so long as they protect “legitimate business interests.” The statute provides a non-exhaustive list of examples of “legitimate business interests,” but lower courts in Florida have diverged over whether information that an employer contends is a “legitimate business interest” is included within the scope of that definition when it is not among the statute’s listed examples. The Florida Supreme Court recently shed new light on this topic.

White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, came before the Florida Supreme Court as a consolidated appeal of two cases involving enforcement of restrictive covenants against marketing representatives whose primary roles were to cultivate relationships with patient referral sources in the home health services industry. The Court resolved a split in the circuits holding that patient referral sources constitute legitimate business interests sufficient to support a contractual restriction on competition.

The Court rejected the former employees’ arguments that patient referral sources were not entitled to protection because they did not fall within one of the specifically enumerated legitimate business interests identified in section 542.335. Citing the “includes, but not limited to” language in the statute, the Court explained that the omission of a specific business interest from the non-exhaustive list does not mean its exclusion. Instead, trial courts in Florida must engage in a fact- and industry- specific inquiry to determine whether a non-enumerated interest is a legitimate business interest entitled to protection under the guiding principle of preventing unfair competition.  

Turning to the home health services industry, the Court noted that referral sources are of utmost importance to home health care companies that cannot operate without them. In this context, referral sources are a legitimate business interest because, as one witness explained, they were the company’s “most important business asset,” and there is an indispensable relationship between the referral source and the company’s substantial relationships with specific prospective patients.

Providing fodder for future litigation, the Court reminded employers that enforcement of restrictive covenants is the exception to the general rule that restraints on trade are illegal and that special facts must be present beyond ordinary competition to warrant protection. Though the statute’s non-exhaustive language may broadly grant protection to a myriad of business interests in the state, trial courts have wide discretion through modification and blue pencil to fashion a similarly context-specific remedy in these special cases.  

This decision not only resolves the dispute regarding the protection entitled to referral sources in the home health services industry, it also provides valuable insight for all employers who seek to protect industry-specific businesses interests from unfair competition in Florida through the use of restrictive covenants.