Can You Protect Referral Sources in Your Non Compete Agreements?
If you have a business and you want to protect your business interests, you should be using a noncompete agreement. Noncompete agreements will keep your employees from leaving your employ, and jumping to competitors businesses (or from starting their own businesses). This can ensure that you can train your employees, and expose them to the way your business operates, without fear that they will take their training and knowledge to compete against you.
But noncompetes aren’t the only thing your business needs to protect. You can also have employees sign nonsolicitation agreements, where your employees agree that they will not solicit your business’ clients, or even solicit your current employees, to try to convince them to leave your business.
But there is another fight on the legal horizon when it comes to noncompete agreements: the fight over referral sources.
Why So Controversial?
Referral sources are controversial, because they aren’t definite business interests; they are more speculative.
A referral source sends you business or clients—the referral source isn’t actually direct business for you. Additionally, a referral source has no contract with you, and can, at any time, stop sending referrals. The question then becomes whether you have a legitimate business interest in trying to protect your referral sources by making employees agree that if their employment with your company ends, that they won’t contact or solicit your referral sources.
Courts in Florida are divided on whether referral sources can, in fact, be protected by an agreement.
One district court said that referral sources, and what they provide, were too speculative, and too prospective, to be given protection under Florida’s noncompete statute.
But another district court said otherwise, and noted that because the law didn’t specifically say that referral sources were excluded from protection, that it was OK to prohibit a former employee from contacting a business’ referral sources. It should be noted that in that case, the agreements between the employer and employee did specifically note referral sources, and that they cannot be contacted.
What Should You Do?
There is as of yet no definitive word what the law is, statewide, when trying to protect your referral sources.
If you do want to protect referral sources from former employees you are best served specifically saying that in your agreements—at least according to one district court, that fact mattered. You also may be well served to specifically name your referral source or sources, which may help you justify the business interest you are trying to protect, in the event your contract is challenged in court.
A small statement or some verbiage explaining why the referral source is necessary to protect, or why there is a legitimate business interest in perfecting the referral source, can also be helpful to you.
Protect your business from those who try to steal what you have worked hard to develop. Call our West Palm Beach business litigation attorneys at Pike & Lustig today to review your business contracts and agreements.