Florida District Courts of Appeal Certify Conflict as to whether Referral Sources are a Legitimate Business Interest to support Restrictive Covenants
Recently the Fourth and Fifth District Courts of Appeal took conflicting stances as to whether referral sources can be a legitimate business interest to support enforcement of restrictive covenants through a temporary restraining order (“TRO”). See Infinity Home Care, LLC v. Amedisys Holding, LLC, No. 4D14-3872, 2015 WL 7292837, — So.3d —- (Fla. 4th DCA Nov. 18, 2015) Infinity Home; Hiles v. Americare Home Therapy, Inc., No. 5D15-9, 2015 WL 9491847, — So.3d —- (Fla. 5th DCA Dec. 31, 2015) Hiles. Despite strikingly similar facts in the two cases, the courts reached conflicting conclusions. Given the conflict, counsel for employers should be careful as to how they couch their legitimate business interest arguments regarding the enforceability of restrictive covenants within these districts and be alert as to the potential positions not-yet-decided from the other three Florida appellate courts.
In Infinity Home Care, an employee served as a coordinator for Amedisys Holding, LLC, a home health care service company that provides in-home nursing and hospice care. As a coordinator, this employee was responsible for developing and maintaining relationships with health care facilities that referred their patients to Amedisys for home health services. The employee used relationships established prior to working for Amedisys, to cultivate referrals from the Cleveland Clinic to Amedisys.
This employee executed an employment agreement with Amedisys that contained restrictive covenants, including non-compete and non-solicitation provisions. When the employee left Amedisys, she continued to seek Cleveland Clinic referrals on behalf of her new employer, Infinity Home Care, LLC. Meanwhile, Amedisys suffered a significant decline in referrals from the Cleveland Clinic in light of the employee’s competitive behavior. Amedisys considered its Cleveland Clinic relationship vital to its business and considered the Cleveland Clinic referrals as a by-product of its resources such as time and money. As such, Amedisys filed a lawsuit seeking among other things a TRO for the employee’s violation of the restrictive covenants.
The trial court enforced the restrictive covenant and granted a TRO restricting the employee’s referrals to Amedisys’ competitors for one year. In doing so, the court held that referral sources are a legitimate business interest under Section 542.335 of the Florida Statutes, a statute that governs the enforceability of non-compete agreements and restrictive covenants.
On appeal, the Fourth DCA agreed. In doing so, the Fourth DCA refused to interpret the statute narrowly. Since the statute does not explicitly exclude referral relationships, the Fourth DCA found it would be improper to read such an exclusion into the statute. The facts that the employment agreement specifically addressed “referral services” and Amedisys considered the referral services central to its business were crucial facts that assisted the Fourth DCA’s decision to find such referrals of potential clients protected under Section 542.335.
Just weeks after the Fourth DCA’s decision, the Fifth DCA found the complete opposite. In Hiles, an employee resigned from her position with Americare Home Therapy, Inc., a company that provides health services to health facilities and physicians, to work for a direct competitor. Like the employee in Amedisys, this employee also executed an employment agreement which contained restrictive covenants, including non-compete and non-solicitation provisions.
Before the employee left Americare, she began sending Americare documents related to its referral sources and patients to her personal e-mail account. Americare learned of this conduct and then terminated her. On the same day she was terminated, she continued sending Americare’s information to her personal e-mail account and began working for a direct competitor, Doctor’s Choice.
In reaction, Americare initiated a lawsuit against the employee seeking, among other things, a TRO to enjoin her from violating her restrictive covenants. The trial court found that the restrictive covenants were supported by legitimate business interests such as “Americare’s valuable business information, substantial relationships and good will with business partners, referral sources and patients.” Hiles, 2015 WL 9491847, at *5.
The employee, however, appealed to the Fifth DCA arguing that referral sources are not legitimate business interests under Section 542.335 and thus the restrictive covenant preventing her from soliciting these referral sources was, therefore, unenforceable. The Fifth DCA agreed and stated that “[t]he referral sources merely act as a conduit to supply these unidentified prospective patients to the home health care agencies, one of which is Americare.” The court found that protection of such information was not a legitimate business interest sufficient to support the validity of the defendant’s restrictive covenants.
In making its determination, the Fifth DCA acknowledged that its Hiles opinion was in direct conflict with the Fourth DCA’s Infinity Home Care opinion and certified a conflict. Until the Florida Supreme Court declares the law in Florida, prudent employers must beware of these divergent viewpoints going forward.