Non-compete Agreements: How to Make Them Stick (Mostly)

When contracting physicians, employers often include covenants not to compete with the group or facility after the relationship has terminated. These covenants are intended to prevent physicians from using the employer’s reputation, good will and marketing to build a private practice after leaving.

 

While restrictions restraining competition are generally disfavored by the law, Florida has created an exception in Chapter 542.335, which provides that such provisions may be valid if they are reasonable in time, area, and scope. Generally, a time limit of six months is presumed reasonable, whereas over two years is presumed unreasonable. Additionally, courts have refused to enforce a non-compete covering an entire county. Conversely, where a physician opened a competing facility within ten miles of his ex-employer, courts have enforced the restrictive covenant.

 

Another factor in determining reasonableness is the relationship between the employer’s facility and the patients who are being siphoned off. Where a hospital attempted to prevent an oncologist from seeing any patients in an entire area, the court found the restriction too broad. But where a physician admitted that 40% of his patients were formerly his employer’s, the court concluded that the employer had suffered an actual injury, another essential component of enforcement.

 

To prevail, the employer must show that a legitimate business interest is at stake. Where a physician left a practice and refused to accept any of its former patients, the court still debated whether referrals constituted a “legitimate business interest” of the practice, since other doctors who were a source of referrals began referring patients to the new practice. However, when a doctor testified that even if the physician had not opened his own practice, he still would not refer patients to the former employer, the court found no legitimate business interest in enforcing the covenant.

 

In drafting these contracts, a careful evaluation of these factors should produce an agreement that will appear reasonable in the event enforcement becomes necessary. Conversely, an agreement that simply prevents a physician from becoming a competitor is unlikely to prevail.