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Beware – Your Referral Sources May Not be Protected

By Darryl R. Richards | Categories: Articles, LitigationPrint PDF December 2013

In Florida, there is no doubt that non-compete agreements to protect legitimate business interests are enforceable.  Yet, actions to enforce restrictive covenants are hotly contested.  The litigation often centers on the question of whether the restrictive covenant is reasonably necessary to protect a “legitimate business interest.”  While §542.335(1)(b), Florida Statutes, defines the term legitimate business interest, it does so without limitation.  One area which is the subject of great debate and conflicting decisions is whether referral sources are legitimate business interests which may be protected by a restrictive covenant.  Successful doctors and other professionals diligently cultivate referral sources and relationships.  Those relationships are the lifeblood of any professional practice.  Doctors and other professionals immerse themselves in professional, social and civic organizations in part to develop relationships with other professionals, community leaders and civic leaders who are potential referral sources.  To develop strong referral relationships often takes years of time, effort and expense.  Referral sources are important to any professional practice, but are referral sources legitimate business interests that may be protected by a non-compete agreement?  Under Florida law, the answer depends in part on where a professional practices.

In the Florida Keys and South Florida, one trial court found that a non-compete may be used to protect a “patient base, referral doctors, specific prospective and existing patients, and patient goodwill.”  An appellate court agreed and said that the restrictive covenant was reasonably necessary to protect legitimate business interests in a patient base, referral doctors, specific prospective and existing patients, and patient goodwill.  In South Florida, therefore, doctors and other professionals can reasonably expect enforcement of non-compete agreements to protect referral sources.

Not too far to the north in the Orlando area, however, the story is quite different.  There, a new doctor joined an established hematology practice.  That practice introduced the new doctor to patients, referral sources and helped him get privileges at local hospitals.  The practice had taken years to develop its referral sources and patient goodwill.  The new doctor had no contacts in the community and used the practice’s relationships to develop his practice.  After the new doctor established a practice using his employer’s contacts, he left and started a competing practice.  A trial court and appellate court refused to enforce a non-compete to protect referral sources, even though those courts recognized that specialists receive “a significant share of their new patients from referring physicians” and that they spend significant time and money to cultivate referral relationships.

The Florida Supreme Court, however, has decided not to resolve the conflict.  Chief Justice Lewis dissented and argued that “a uniform interpretation of §542.335 is critical not only to medical doctors but to those in all walks of life, because this legislation applies to all types of restrictive covenants.  On a daily basis, economic futures are placed at risk through the use of such covenants and reliance upon such covenants.  It is clear to me that referral professionals are ‘legitimate business interests’ subject to protection in the geographic jurisdiction of Dade and Monroe Counties.  However, those in the geographic jurisdiction of the Fifth District Court of Appeal do not have the same legal rights.”

So, where you work may decide what your rights are.  Do not let your hard work be taken from you.  There are steps you can take to protect your referral sources.  Those steps will be different based on where you are located.  If you wait until your former employee or partner is walking out the door with your referral sources, it may be too late.

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