3 recent decisions affecting businesses seeking to enforce restrictive covenants
In November and December 2015, the 4th District Court of Appeals of Florida decided three cases regarding the enforcement of restrictive covenants. Two of the cases focused on whether referral sources are a protectable, legitimate business interest and the third focused on the correct application of the presumption of irreparable injury. Overall, these cases are favorable holdings for businesses seeking to enforce restrictive covenants in the 4th DCA.
The cases finding that referral sources are protectable legitimate interests conflict with a 2006 5th District Court of Appeals case that found the opposite (Fla. Hematology & Oncology v. Tummala, 927 So. 2d 135 (Fla. 5th DCA 2006)). The conflict in the decisions between the circuits will hopefully prompt the Florida Supreme Court to review and make a final determination for all of Florida.
Infinity Home Care, L.L.C. v. Amedisys Holding, LLC
In Infinity Home Care, L.L.C. v. Amedisys Holding, LLC, the issue before the court was whether referral sources for home health services are a protectable legitimate business interest under section 542.335, Florida Statutes. No. 4D14-3872, 2015 WL 7292837, *3 (Fla. 4th DCA Nov. 18, 2015). In its analysis, the court reasoned that that statute does not expressly exclude referral sources and the statute specifically provides that the legitimate business interests listed are not exclusive. Because of this, the court found that it was allowed “to examine the particular business plans, strategies, and relationships of a company in determining whether they qualify as a business interest worthy of protection.” Infinity, 2015 WL 7292837 at *5. The court held that referral sources are a protectable legitimate business interest and certified conflict with Tummala.
Mederi Caretenders Visiting Serv. Of SE Fla., LLC v. White
The court in Mederi Caretenders Visiting Serv. Of SE Fla., LLC v. White, without discussion, and relying on Infinity, concluded that referral sources are protectable legitimate interests and that the restrictive covenant was enforceable; the court also certified conflict with Tummala. Nos. 4D14-488, 4D14-2460, 2015 WL 7752751, *1 (Fla. 4th DCA Dec. 2, 2015).
TransUnion Risk and Alternative Data Solutions, Inc., v. Reilly
Also on December 2, 2015, in TransUnion Risk and Alternative Data Solutions, Inc., v. Reilly, No. 4D15-494, 2015 WL 7740421, (Fla. 4th DCA Dec. 2, 2015), the court found that the trial court “failed to correctly apply the statutory presumption of irreparable injury under section 524.335(1)j), Florida Statutes (2013)” and that the remaining findings were not adequately supported in reversing and remanding a denial of a preliminary injunction. Section 524.335(1)j) creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant; in order to benefit from that presumption the movant must establish that the covenant protects a legitimate business interest and that the covenant was violated. Once those are established, the statute shifts the burden to the respondent to establish the absence of injury. Because the ruling by the trial court was entered before the respondent gave any evidence, there is no way that the respondent could have met its burden.
The court also found that the trial court’s findings on the other elements were inadequate. The court found that the continued breach of a non-compete agreement threatened an employer’s goodwill and relationships with its customers and that at an injunction was required to prevent this loss. Because the trial court found that the presumption of irreparable injury applied, it impliedly found that movant had violated an enforceable restrictive covenant and therefore there was a substantial likelihood of success. Finally, the court failed to specifically articulate an overriding public policy reason for refusing to enforce the restrictive covenant on public policy grounds.