Florida Supreme Court expands definition of Legitimate Business Interests protected by Covenants not
It is commonly known that trial courts applying Florida law to an employment contract containing a covenant not to compete will enter injunctive relief enforcing the covenant so long as the agreement is in writing, signed by the person to be bound, is reasonable in geographic scope and duration, and finally, is supported by a legitimate business interest. These requirements are spelled out in Florida Statute § 542.335. The statute also defines legitimate business interests, identifying a non-exhaustive list that includes 1) trade secrets, 2) valuable confidential business or professional information, 3) relationships with existing customers, patients or clients, 4) goodwill associated with an ongoing business, a specific geographic location or a specific marketing or trade area, and finally, 5) extraordinary or specialized training. Again, this is a non-exhaustive list, and the statute itself makes this clear. In defining legitimate business interests, the relevant section states that the term “includes, but is not limited to … .” (Emphasis mine).
Recently, the Florida Supreme Court decided a case expanding on the meaning of what can constitute a legitimate business interest. In White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, decided on September 14, 2017, the Court was asked whether home health service referral sources can be a protected legitimate business interest under the statute. The Court was essentially asked to resolve a conflict between two Florida appellate courts on this issue. One of those courts decided referral sources were not entitled to protection as legitimate business interests because they essentially represented relationships with unidentified, prospective patients. In other words, the case turned not on the relationship with the referral sources themselves, but on the unknown future potential referrals. (Remember that the non-exhaustive definition in the statute mentions existing patients.)
In White, the Court disagreed with this approach. Instead, the Court noted that attempting to protect identifiable referral sources is distinct from claiming an interest in an unidentified patient base, and ultimately held that the referral sources are within the category of legitimate business interests entitled to protection under the statute.
The White decision makes clear that the examples in Florida’s non-compete statute of what can constitute a legitimate business interest are just that – examples. They do not represent an exhaustive list. We know now that referral sources in the home health setting can constitute legitimate business interests worthy of protection under the statute. From this, it seems only logical to conclude that referral sources in other settings may also be considered legitimate business interests as well.
Covenants not to compete can be a valuable tool when used correctly to protect businesses from unfair competition. Having said that, an employer that over-reaches in terms of the geographic scope and duration of the restriction will likely face problems in terms of seeking enforcement.
For more information on Florida’s non-competition statute and how it may impact you, please call our office at 561.810.1600 and ask for Jon Stage, Esq. or Phil Ward, Esq.