As direct physician employment and physician practice acquisition become the norm, the emergence of non-compete and non-solicitation language has entered practice administrators’ lexicons for legal agreements.
Practices frequently use a physician noncompete or restrictive covenant to prevent physicians from leaving to work for competitors or starting their own practice. These agreements protect a practice’s legitimate business interests by preserving its investment in training physicians and also protecting the practice’s relationships with patients and vendors.
Non-compete agreements have, at times, been viewed as against public policy because they can create a perceived interference with the patient-physician relationship. Understanding the ins and outs of enforcing a non-compete agreement has become increasingly important in the dynamic landscape of the healthcare industry, where hospitals ebbing back and forth with buying and selling of physician practices, physicians flowing from sole proprietorships to independent practice associations and retail healthcare clinics entering the scene.
Florida, for example, is one of the top three states for physician density and population. It also has more than 85 million annual visitors and the highest Medicare population in the nation.
Historically, when Florida courts have been asked to enforce a physician non-compete agreement, they have weighed different public policy considerations on top of the statutory analysis prescribed under Fla. Stat § 542.335 to determine whether the geographic scope and time duration are reasonable to protect the employer’s legitimate business interests. Public policy considerations have included whether enforcement will cause a shortage of physicians in a specific geographic location or specialty, or if it might otherwise unduly interfere with the patient-physician relationship. The result of this complex interplay of factors is uncertainty among employers and physicians alike in knowing if a non-compete will be enforced.
Since 1996, when the current Florida non-compete law was enacted, court rulings have been inconsistent about citizens’ right to obtain medical treatment from the physician of their choice, showcasing that the doctor-patient relationship is much more important than the statutory standard under the law which is to allow the non-compete to be enforced when the employer can establish a need to protect its legitimate business interests.
From a practical standpoint, Florida and many other states have laws allowing employers to enforce physician non-compete agreements in employment situations. Where the uncertainty comes in is knowing for how long and for how wide a region that non-compete may be enforced. In seeking enforcement of a non-compete, the employer must establish it has a protectable business interest to justify the physician non-compete. There must also be a reasonable limitation of time range and geographic restriction as is necessary to protect the employer’s business interest. Florida law dictates that if the employer has proven these legitimate business interests exist and need to be protected, the burden shifts to the employee, who must demonstrate the restraint is overbroad, overlong or otherwise not reasonably necessary.1
While Florida’s non-compete statute makes it clear that a court has the power to modify overbroad, overlong or unreasonable terms, courts have interpreted this language to include the court’s power to add terms. For example, even if a non-compete agreement omits the geographic area for a restrictive covenant, a court can insert what it regards as a reasonable geographic limitation. Providers should exercise caution in signing an employment contract based upon the presumption it will not be enforceable because the non-compete is overly broad. In many instances, the non-compete will be enforced with modifications to be more reasonable in scope.
Adding yet one more level of complexity to the analysis, Florida law considers the relative bargaining power of the parties in defining a reasonable length of time. Below are some scenarios that the statute expressly contemplates:
1. For a restrictive covenant sought to be enforced against a former employee, agent or independent contractor … less than six months is presumed reasonable and anything more than two years is presumed unreasonable.2
2. For a restrictive covenant sought to be enforced against a former distributor, dealer, franchisee or licensee of a trademark or service mark … less than one year is presumed reasonable and anything more than three years is presumed unreasonable.3
3. For a restrictive covenant sought to be enforced against the seller of all or a part of a business, professional practice or partnership, less than three years is presumed reasonable and anything more than seven years is presumed unreasonable.4
4. In the case of reasonableness in time of a post-term restrictive covenant predicated upon the protection of trade secrets, any restraint of five years or less is presumed reasonable and anything more than 10.5
Bargaining power was considered in the recent case of AmSurg New Port Richey FL, Inc. v. Vangara,6 which is similar to scenario 3 above. In this case, Vangara accepted a joint venture agreement with AmSurg to own and operate an ambulatory surgery center. Vangara agreed to not have any ownership or financial interest in any other ambulatory surgery center or competing business. AmSurg later learned that Vangara began operating a competing ambulatory surgery business. Vangara refused to cease operating the business, and AmSurg sued in Florida court to enforce the non-compete agreement.
The Florida trial court, relying on the Tennessee Supreme Court opinion in Murfreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674 (Tenn. 2005), found that the joint venture non-compete provision was unenforceable. Although the agreement was governed by Tennessee law, the appellate court’s decision was similar to the Florida statute governing non-competes. Specifically, a non-compete is considered more reasonably enforceable, even for longer duration and larger geographic scope, when there is more equality between the parties’ bargaining positions. This is one of the reasons a distinction was drawn by the appellate court in the AmSurg case in deciding to enforce the non-compete and overturning the lower court’s decision. A non-compete that restricted the physician from being involved in a competing business was not seen to contravene the same public policy interest as prohibiting a physician from practicing medicine and thereby interfering with the physician-patient relationship.
The remaining uncertainty around when and to what extent a non-compete will be enforced has led to the proliferation of disputes between physicians and their employers,7 unnecessarily adding to the skyrocketing costs of healthcare. There is a real need for states to pass laws that are specific to physician non-competes to allow for more certainty in terms of the degree to which a non-compete may be enforced, irrespective of the special public policy considerations present given the sanctity of the physician-patient relationship and positions taken by groups such as the American Medical Association. Connecticut recently passed a bill, Senate Bill 351, which is specific to physician non-competes with provisions that define the when, what and why of when a non-compete will be enforced. For example, non-competes will not be able to restrict a physician for a period of more than one year or more than 15 miles from the physician’s primary work site. The nature of the separation also is taken into consideration. For example, when a physician is terminated without cause, a non-compete cannot be enforced.
A legitimate need exists for states like Florida to take after this example and pass clear legislation specifically focused on the enforceability of physician non-competes. This will help ease litigation and cause more restraint from physicians and employers from entering into overly broad and unreasonable non-competes in the first place.
Notes:
1. Fla. Stat § 542.335 (1)(c)
2. Fla. Stat § 542.335 (1)(d) 1
3. Fla. Stat § 542.335 (1)(d) 2
4. Fla. Stat § 542.335 (1)(d) 3
5. Fla. Stat § 542.355 (1) e
6. No. 2D14-2117, 2015 WL 894322 (Fla. Dist. Ct. App., March 4, 2015)
7. Schencker L., “More Physician Employment Means More Breakup Disputes,” Modern Healthcare, July 30, 2016.
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