Referral Relationships and Florida Non-Compete Agreements

In many non-compete cases, the plaintiff’s goal is to protect certain relationships.  This often gives rise to questions about what types of relationships can be protected through using a non-compete agreement.  Although Florida Statute 542.335 indicates that customer relationships can constitute a legitimate business interest, the customer relationship is not the only type of relationship to feature prominently in non-compete litigation.  In many non-compete cases, a former employer is not only worried about customers, but also equally concerned about referral sources.  As it turns out, the question of whether or not referral relationships can be protected is an open question under Florida law.

One of the most noteworthy cases on the topic is Florida Hematology & Oncology v. Tummala, 927 So. 2d 135, 139 (Fla. 5th DCA 2006).  In Florida Hematology, the court held that referral relationships did not constitute a legitimate business interest that could justify enforcement of a non-compete agreement.  The court’s reasoning, in my view, was extremely sound.  In short, the court reasoned that referral sources “supply a stream of unidentified prospective [clients] with whom [the employer] had no prior relationship” and that referral relationships therefore cannot constitute a legitimate business interest.   Both the statute itself and the relevant case law offer support for this holding and demonstrate the soundness of that logic.  When dealing with customers, the relevant statute and the relevant case law indicate that specific, prospective clients can constitute a protectable interest.  In contrast, the case law makes clear that unidentified, prospective clients cannot constitute a protectable interest.  It follows, then, that a referral source that provides a stream of unidentified prospective clients should not be protected.

Obviously, most of those practitioners who represent employers in non-compete cases take the other side, and argue that referral relationships should be protected.  Unfortunately, certain recent case, and particularly one out of the United States District Court for the Middle District of Florida, have been widely misconstrued as lending support to that position.  Electrostim Medical Services v. Lindsey,  2012 WL 1405707 (M.D. Fla. Mar. 13, 2012) report and recommendation adopted,  2012 WL 1405681 (M.D. Fla. Apr. 23, 2012) is now cited as the leading, recent Florida case holding that referral relationships are protectable interests.  This is inaccurate.

In the EMSI case, the parties disputed who were the actual customers and who were the referrers.  The case involved a medical device company that supplied certain products, especially TENS units, to doctors in the relevant market.  Patients would visit a doctor, the doctor would recommend the TENS unit, and then the patient would buy the TENS unit from the company.  After a sales executive left the company and went to work for a competitor, a non-compete lawsuit followed.  During the case, the plaintiff took the position that the doctors were the actual customers.  The defendant took the position that the end users were the customers.   Based on the specific facts of the case, the court concluded that the doctors were more akin to customers than referral sources, and that such relationships were therefore entitled to protection.  So, in actuality, the EMSI case does not hold that referral relationships are protectable interests, period.  Rather, the case holds that certain referral relationships are more akin to customer relationships are therefore deserve protection.  The distinction is an important one.

Jonathan Pollard is a trial lawyer and litigator based in Fort Lauderdale, Florida.  He focuses his practice on cases involving non-compete disputes, antitrust and business torts.  He represents clients in Miami, Fort Lauderdale, Boca Raton, West Palm Beach, Jupiter, Fort Myers, Tampa, and Orlando.