Business Is Business: Recognizing Referral Relationships as Legitimate Business Interests Protectable by Restrictive Covenants in Florida

Your client built a successful medical equipment business by earning the trust of doctors who referred patients to his company. He hired a trusted employee to help with the referrals, but she left and started her own competing business. She used the information she had about the doctors’ preferences to win them over. Now, the doctors are splitting their referrals between the two companies, causing a big drop in your client’s revenue. In Florida, it’s unclear whether covenants not to compete can protect businesses that rely on referrals. The courts have to balance the freedom of contract with the principle that contracts in restraint of trade are unlawful. To enforce a covenant not to compete, a business has to prove it has a legitimate business interest, like protecting trade secrets or customer lists. This analysis comes from a case called Hapney v. Central Garage, Inc. and a Florida law called F.S. §542.335. So, the former employee might not be protected after all, and the business owner will have to prove they have a legitimate business interest to enforce the covenant not to compete. In simple terms, this statute balances the idea of not restricting trade with the idea of allowing contracts. It makes it easier to enforce agreements not to compete by setting out specific requirements and getting rid of certain excuses. The statute also says that a noncompete agreement cannot be too long or broad, and must be tailored to protect the business interests of the person trying to enforce it. The statute lists certain business interests that can be protected, like trade secrets and customer relationships, but it also says that there may be other interests that can be protected as well. It also says that to be protected, a business relationship must be with a specific, identifiable person or entity. This means that potential customers that can’t be specifically identified may not be protected under this law. Are referral sources protectable business assets? A recent case in Florida challenged this idea, and the court ruled that protection of referral sources cannot justify enforcement of a noncompete agreement. Referral relationships are important for businesses, but it’s still unclear whether they can be legally protected. Dr. Tummala left his old job at a medical office in Florida and opened his own practice. He refused to accept patients from his old job and only took in new patients who had never been treated at his old office. The old office said they were losing new patients because of this. The court said that Dr. Tummala couldn’t treat any patients from his old job and the old office argued that they also had a right to keep their referral sources. The court analyzed if referral sources are important for a business and should be protected by law. They said that they are crucial for Florida Hematology, but the court decided they are not enough to justify a non-compete agreement. The court said that referral sources are not protected by the law because they bring in new patients the business didn’t know before. Florida Hematology took the case to the Supreme Court, but they decided not to hear it. Some people think the Supreme Court should have heard the case to resolve a conflict between two lower courts. But it’s important to note that relationships with specific referral sources are not the same as new customers, and they should be protected under the law. Florida law allows businesses to protect their interests if someone misappropriates specific referral relationships that they have worked hard to build. This means that if a company has put in effort and resources to maintain relationships with certain people who regularly send them customers, they can take legal action if someone tries to take those relationships away. This is not about speculation, but about concrete evidence of harm caused by the misappropriation. In Florida, businesses can use noncompete agreements to protect their referral relationships, which are important for bringing in new customers. These relationships are considered a legitimate business interest and can be protected by the law. However, there is still some debate about this issue, and businesses that rely on noncompete agreements for their referral relationships are facing uncertainty until it is resolved. This is a legal case in Florida about a doctor who left a medical group and started his own practice. The original medical group had a contract with the doctor that said he couldn’t compete with them. The case was about whether this contract was legal and if the doctor could start his own practice. The court ruled that the contract was not enforceable because it was not necessary to protect the original medical group’s business interests. The case shows that sometimes contracts like these might not be allowed if they’re not fair.

Source: https://www.floridabar.org/the-florida-bar-journal/business-is-business-recognizing-referral-relationships-as-legitimate-business-interests-protectable-by-restrictive-covenants-in-florida/