The Florida Supreme Court finally addressed the issue of non-competes in healthcare-related employment agreements, prompting this firm’s clients to review and revise their restrictive covenants.
A non-compete, or restricted covenant, prohibits a physician employee from working in a certain prohibited area following termination of the physician’s employment agreement. Florida statute protects non-competes, within certain parameters, as exceptions to the general prohibition against restraints of trade.
If you have listened to our Uh Oh! Series webinars on non-competes or received advice from me on non-competes, you probably heard me discuss the Tummala case as being very pro-physician. In Florida Hematology & Oncology v. Tummala, the Florida 5th Circuit Court of Appeals held that it was OK for Dr. Tummala to leave FHO and set up a competing practice in the prohibited geographic area so long as he did not treat any FHO patients. The question was whether the non-compete applied to future referrals from other providers. That case, from Lake City, was appealed to the 5th Circuit. A similar case, Caretenders Visiting Services of Southeast Florida, LLC v. White, was appealed to the 4th Circuit Court of Appeals, addressing the same question in Tummala: does an employer have a protected business interest in referrals from others in the healthcare industry? It does, in certain settings, according to the 4th Circuit in White.
The circuits were in conflict. The Supreme Court ended the conflict September 14th with its decision in the appeal of White to the Supreme Court. (The White appeal was consolidated with a similar case: Americare Home Therapy, Inc. v. Hiles). The pro-physician Tummala case, holding there is no protected business interest in unidentified, prospective patients, is no longer good law. Referrals of unidentified, prospective patient can be protected in certain circumstances, the Supreme Court said.
In both White and Hines, the employers were home health care companies that employed marketing representatives “whose primary roles are to cultivate relations with referral sources in the hope of securing future patient referrals.” (Yes, in this setting, it is OK to say the “R-word” – referrals, apparently). Said the court: “The importance of referrals to HHCs cannot be overstated.” White left her job, was hired by a competitor, and marketed to and attempted to solicit from referral sources previously developed. Hines transferred her employer’s documents to her personal email, apparently contact information of referral sources to use in a new job and subsequently solicited those sources.
The Court held that it was “undisputed” that both employees violated their non-competes by working for competitors in the restricted area and relevant periods.
Much of the decision seems to rely on the importance of referrals in the home healthcare niche in particular. “We turn to the dispositive issue: whether home health service referral sources can be a protected legitimate business interest” under the statute (emphasis added). Referrals are the “lifeblood” of the home health care business, the case quoted. “Certain industries, such as home health services, present special facts where protecting referral sources may be necessary to prevent unfair competition,” the Court stated. “Consequently, the determination of whether an activity qualifies as a protected legitimate business interest under the statute is inherently a factual inquiry, which is heavily industry- and context-specific.” “For instance, an interest in referral sources for specialist physicians may be a legitimate business interest, thus capable of protection in some circumstances and unprotected in others.” Indeed, the Court even says in a footnote that indeed the facts under Tummala may survive its holding in the current case in that referrals to individual physicians are different than referrals to a business or a practice.
The decision, which includes a nice tutorial on the use of “including, but not limited to” in statutory construction, allows an artful attorney to perhaps distinguish the holding as limited to home health and not so limiting in the physician employment setting. “Attempting to protect identifiable referral sources is distinct from claiming an interest in an unidentified patient base.” Many physicians get new patients not from previous referral sources, but from payer network listings and general advertising – unidentified patient bases, perhaps. Contrast that to home health, in which most referrals must be certified in writing under Medicare. Further, the court distinguished the facts (stealing marketing lists) in Hiles as “egregious.” The Court remanded the cases for specific holdings as to the employees White and Hiles.
“Home health service referrals may be a protected legitimate business interest depending on the context and proof adduced.” The task for employers in light of the decision is to describe context and create proof by documenting it in revisions to its non-compete provisions. The decision provides a great basis upon which employers should update their non-competes. The employer should document in the employment agreement special facts present over and above ordinary competition. Argument of the unfair advantage the employee would gain in future competition would also be helpful in enforcing a non-compete.