Even Without a Non-Compete, It May Be Unlawful to Obtain Clients from Prior Employer
In early October 2019, in a lawsuit called Matrix Health Group d/b/a BioMatrix v. Sowersby, et al., No. 18-61310-CIV (S.D. Fla., Oct. 7, 2019), a federal court in Fort Lauderdale issued a ruling allowing a health care company to take its former employee to trial for, among other things, violating non-disclosure and loyalty provisions contained in an employee handbook and employment agreement.
This case reminds us that: (i) even without a non-compete or non-solicit agreement, it is unlawful for an employee, while still employed, to take any actions that hurt their employer to the benefit of a competing business; and (ii) in the health care industry, individuals subject to a non-compete or non-solicit agreement and companies who hire them should anticipate a lawsuit if patients or customers from the individual’s prior employer follow the individual to the new employer. Therefore, an employer should protect itself by inquiring as to whether potential hires are subject to any kind of restrictive covenant (a catch-all term that includes non-compete, non-solicit, or confidentiality agreements) before they begin their employment and plan accordingly.
Case Background. BioMatrix, a Florida healthcare company, provides Intravenous Immunoglobulin Therapy (“IVIG”), a type of blood infusion treatment for patients with certain medical conditions, including Guillain-Barre syndrome, leukemia, lupus and post-bone marrow transplantation. BioMatrix employs sales representatives to maintain and support its patients by answering their questions and coordinating with their nurses and treating physicians.
In mid-2014, BioMatrix hired John Sowersby as a sales representative and assigned him to manage its central and north Florida regions. While at BioMatrix, Sowersby was tasked with developing relationships with physicians whom BioMatrix hoped would later refer their patients to BioMatrix for IVIG treatment.
In connection with his employment with BioMatrix, Sowersby signed an employment agreement. He also acknowledged receiving a code of conduct policy and employee handbook. Those documents prohibited certain actions that BioMatrix alleged Sowersby took. Specifically:
- The employment agreement prohibited employees from “rendering services or engaging or participating in business activities that would interfere with his duties to BioMatrix or compete with BioMatrix.”
- The code of conduct policy prohibited employees from soliciting or servicing BioMatrix patients for another company and from disseminating confidential BioMatrix client records.
- Finally, the employee handbook prohibited employees from using or sharing confidential or proprietary information regarding marketing strategies, customer lists, pricing policies, or other related information.
In April 2018, Sowersby left Biomatrix signed and joined InfuCare, a competitor of Biomatrix. Shortly thereafter, InfuCare began providing IVIG treatment to six patients with whom Sowersby had worked while at Biomatrix. As a result, Biomatrix brought a lawsuit against Sowersby for breach of contract, misappropriation of trade secrets, and breach of duty of loyalty. Biomatrix also sued both Sowersby and his new employer, InfuCare, for, among other things, tortious interference with Biomatrix’s business relationships and for violating Florida’s Trade Secrets Act.
After discovery was taken, the parties continued to dispute whether Sowersby had directly influenced the six patients to switch to Infucare as their healthcare provider. Biomatix focused on evidence that Sowersby admitted he hoped “as many patients as possible” would follow him. Infucare, however, presented evidence that the primary physician of the six patients independently referred them to InfuCare.
Court’s Decision. The court ruled that all of Biomatrix’s claims should go to trial because there was conflicting evidence related to Biomatrix’s damages for each claim. The Court determined that, with respect to claims for breach of contract, breach of duty of loyalty, and tortious interference, a factual dispute as to what caused the patients to go to InfuCare. As a result, all three claims should be heard by a jury because a jury (not a judge) is responsible for resolving factual disputes.
Although it was not directly at issue in Biomatrix, one of the background principles behind the decision is that employees in Florida owe a duty of loyalty to their employer. This responsibility is considered a type of fiduciary duty, a general term for an obligation which the law recognizes in certain types of relationships in which one party places trust and confidence in another to act in that party’s best interest. An employee’s duty of loyalty requires, among other things, that employees not compete against their employer prior to separating from employment. In other words, even if an individual doesn’t sign a non-compete or non-solicit agreement, it is still unlawful to compete against an employer while still an employee. The fact that the individual is an at-will employee is also not a defense. In Biomatrix, the court noted that Florida law permits the enforcement of restrictive covenants against at-will employees.
A breach of the duty of loyalty can, however, also constitute a breach of contract when the employer provides for this duty of loyalty in written documents, such as an employee code of conduct policy or an employee handbook – as Biomatrix did in this case. In this case, the Court ruled that it was clear that Sowersby had breached these agreements based on evidence of his plans to transfer patients from Biomatrix to InfuCare without InfuCare’s knowledge. The main issue for a jury to decide is the extent to which Biomatrix was actually damaged by Sowersby’s breach, a required element that a plaintiff must prove to recover on a breach of contract claim.
With respect to the tortious interference claims, the Court noted that it could not decide as a matter of law whether InfuCare intentionally encouraged a breach of Sowersby’s restrictive covenants, a required element which a plaintiff must prove to recover for a claim of tortious interference with a business relationship. BioMatrix had difficulty establish InfuCare was liable in part because InfuCare established that, before Sowersby started his employment with InfuCare, InfuCare specifically asked him if he would be subject to any restrictive covenant after he left Biomatrix – and he “unequivocally responded” that he would not be. In addition, the six patients which moved over to InfuCare came before Biomatrix’s legal counsel sent InfuCare a cease and desist letter notifying InfuCare of Sowersby’s restrictive covenant. Thus, the Court noted that BioMatrix had not shown InfuCare “intentionally breached a contract it did not know about until after the alleged breach occurred.”
Finally, with respect to the trade secrets misappropriation, the Court noted that long-standing law held the question of the existence of a “trade secret” or whether a plaintiff took reasonable steps to protect its trade secrets is extremely fact intensive. That factual dispute, coupled with the additional factual dispute on damages, required the trade secret misappropriation claim to proceed to a jury.
Takeaways for Employees and Employers.
There are important takeaways and several recommendations that grow out of the BioMatrix ruling:
- Don’t solicit customers for a competing business prior to separating employment. Absent a non-compete or non-solicit agreement, it is generally lawful for an individual to market to customers of his or her prior employer. Even while employed, it is generally not even unlawful to plan and prepare to set up a competing business or to interview with a competitor. Importantly, however, an employee breaches their fiduciary duty to an employer if they start competing or otherwise take acts that harm their employer in anticipation of competition while still employed. In Florida, that duty of loyalty extends to all employees.
- Employees in the healthcare industry should anticipate, and prepare for, a lawsuit if they breach their non-compete. The use of non-compete agreements in the healthcare industry is becoming ubiquitous, even for job positions that likely should not be subject to such agreements. Non-compete agreements are typical for sales and marketing positions in the healthcare industry. As applied to those positions, the agreements generally prohibit not only solicitation of patients, but also referral sources, such as physician groups. As detailed in a prior article, the Florida Supreme Court held that referral sources in the healthcare industry may be subject to projection under Florida’s non-compete statute. Today, non-compete agreements are also often provided to the healthcare providers themselves, such as physicians, nurses and other clinic positions. Many healthcare companies are hyper litigious in enforcing such agreements.
- Ask each potential hire whether she is subject to a restrictive covenant before she starts her employment with the company. Given the prevalence of non-compete agreements in certain fields, including the healthcare industry, it would be wise for an employer to ask each potential hire in writing if they are subject to any kind of restrictive covenant with a prior employer before they begin their employment. The fact that the potential employer has asked and relied on the information the employee gave may be valuable in limiting its liability in the event of a lawsuit if the employee provides incorrect information, as was the case for InfuCare in this case.
Of course, the opportunity to hire the candidate is not necessarily dead in the water if she is subject to an active restrictive covenant. If the potential hire is subject to such an agreement, the potential employer should consider requesting a copy of the agreement from the employee and have it reviewed by legal counsel to determine (a) whether the duties of the potential hire’s new job would conflict with the restrictive covenant; and (b) if so, structure the position to avoid any conflict to the extent possible. For example, the potential hire may agree not to solicit former customers until after the restriction period has passed, or he may be kept from adding any information obtained from the former employer in the new employer’s systems.