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Today’s healthcare world is replete with mergers and acquisitions, hospitals buying up physician practices and surgery centers, and other organizations expanding rapidly. In this environment it can be critical for businesses to protect their services and products from unfair competition. Well-drafted non-compete agreements can save an entity a lot of time, money and business goodwill. Many lawyers and business people think that the broader the non-compete the better the business is protected, but drafting a broad non-compete is like painting a bullseye on your forehead – it’s an open target for a breach and lawsuit. Non-compete provisions should be narrowly tailored to meet specific business objectives. While Florida law allows certain restraints on trade (Fla. Stat. 542.335) and there exists a strong public policy in favor of enforcing restrictive covenants, courts will not allow such restraints to serve as a broad prohibition against competition and will consider public health and policy concerns, especially when the restraint impacts patient care.
Well-drafted non-compete agreements do not fall within a "one size fits all" framework. If the agreement is to withstand judicial scrutiny, the lawyer really needs to know the client’s business before drafting the agreement. However, even when the non-compete agreement is comprehensive and the parties engage in an in-depth analysis of the language, the actions of the parties and the information exchanged during their relationship may drastically impact whether the agreement will hold up in court. Litigating over the legitimacy of a non-compete agreement is rarely a slam dunk for any party. The more narrowly tailored and focused the non-compete, the greater the chance of success on the merits and the less likely a party is to challenge it in the first place. Consider the following when representing a business and drafting a restrictive covenant:
1) Should the non-compete agreement be a separate and distinct agreement?
2) Analyze the applicable industry and narrow down what will really harm the business; specify those items in the agreement to substantiate legitimate business interests (it is absolutely necessary under Florida law that the covenant protect a legitimate business interest).
3) Consider allowing the restricted party to work within the restricted area in a limited capacity if it will not hurt the business (e.g. if a physician terminates employment with a hospital consider letting him work as a solo practitioner).
4) Analyze the breadth of the geographic scope of the restriction.
5) Do not assume that because there is a signed restrictive covenant agreement that the non-compete is certain to be enforced if challenged.
6) In crafting any restrictive language, think about what will motivate a restricted party to leave and compete with the business.
7) Always include a provision that allows a court to modify what it perceives to be overbroad or invalid restraints.
8) Always remember that the primary purpose behind restrictive covenants is to prohibit a party from gaining an unfair advantage.
9) Analyze whether a pre-determined amount of liquidated damages should be included in the agreement.
10)Consider what your industry will look like in five or ten years from now.
As with all contracts, even the best drafted provisions are subject to challenge and litigation. Wouldn’t you rather put your best foot forward in drafting a non-compete agreement than being put on the defensive and forced to defend one that is boilerplate and poorly drafted?
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