Do you own a home health care agency or nurse registry? Safeguard your referral sources through a non-compete agreement and enforce it!
The home health care industry generally includes businesses that provide skilled nursing, physical therapy, and other health-related services to homebound patients. If you run a home care company, you know that referrals are crucial. This is because patients typically seek out home care services after a referral from a “middle man,” such as a physician, hospital, or skilled nursing facility. As a result, home care companies hire marketing representatives to promote the companies and cultivate relationships with the middle men in hope of securing future patient referrals for their business.
Imagine that you hire such a marketing representative, train her, and give her access to your company’s internal referral source database, preferences, and strategies. Naturally, you want to protect your sources, so the representative signs a confidentiality and non-compete agreement as part of her employment contract. After some time, the representative quits, and all of a sudden you start receiving significantly less referrals from the sources that the representative worked on while employed by you. Coincidence? It turns out that the representative started working for your direct competitor and used her relationship with your precious referral sources to your competitor’s benefit, in direct violation of the non-compete agreement. Surely the law is on your side, right?
As always, it depends. The scenario above reflects the facts of Mederi Caretenders Visiting Services of Southeast Florida, LLC v. White, 179 So.3d 564 (Fla. 4th DCA 2015), and similar facts were in Hiles v. Americare Home Therapy, Inc., 183 So.3d 449 (Fla. 5th DCA 2015). While factually similar, the two cases yielded different results, one enforcing the non-compete agreement and protecting the referral sources, and one not. The Florida Supreme Court resolved the conflict in a recent opinion consolidating the two cases.
The issue was whether home health service referral sources can be a protected legitimate business interest enforceable through a non-compete agreement. Under Florida law, non-compete agreements can only protect so-called legitimate business interests which are codified in section 542.335(1)(b), Fla. Stat. (2017), provided that the non-compete agreement itself is not excessively restrictive and otherwise complies with the legal requirements. The section defines “legitimate business interest” with a list including, but not limited to, five categories of recognized business interests, such as trade secrets, client goodwill, etc. Pursuant to its plain meaning and logic, the Florida Supreme Court construed the phrase “including, but not limited to” to mean that the list is not exhaustive, and may be supplemented by additional interests.
When it comes to home health service referral sources, the Florida Supreme Court looked to the general underlying aim of section 542.335, Fla. Stat. (2017) – to prevent unfair competition by protecting crucial business interests. To discern what business interests are crucial, the courts must engage in fact- and industry-specific inquiry. In the home care industry, referral sources are possibly the most important business asset, and are analogical to customer goodwill. Therefore, the Florida Supreme Court concluded that home health care referral sources may be a protected legitimate business interest within the meaning of section 542.335(1)(b), Fla. Stat. (2017); however, the final determination will always depend on the facts of the case and the industry context.
For now, home health care providers can rest assured that their referral sources are secure from former employees’ misconduct. However, this is only true if you have a valid and enforceable non-compete agreement tailored to fit the particular needs and characteristics of your business. If you want to make sure your referral sources are and will remain safe, please do not hesitate to contact the lawyers at Chepenik Trushin LLP, who are experienced, ready, and willing to help.