Tag Archives: restrictive covenants

Monster of a Florida Non-Compete Statute Survives Challenge

Earlier this year, the Florida Legislature enacted a statute that some claim is too similar to a Halloween movie monster. Much like all good movie monsters, this statute, Section 542.336 of the Florida Statutes, was created with the best of intentions. According to the legislative history, the statute was designed to combat the effects of the increasing concentration and consolidation of physician services, which reduced patients’ access to physicians and increased costs. To accomplish these goals, the statute alters existing Florida law on restrictive covenants, colloquially referred to as non-competes, which are usually enforced as long as they were reasonable in geographic scope and duration as well as supported by legitimate business interests.

Section 542.336, though, nullifies certain types of non-competes. It specifically nullifies non-competes that prohibit physicians with a specialty from competing in the same county with their former employers if that healthcare entity employs or contracts every other physician with that specialty in that county. Such non-competes are nullified until three years after another healthcare entity has begun offering the same medical specialty services in the county.

But, like any movie monster released into the wild, the statute has some troubling aspects. As an initial matter, it is wholly unclear whether the statute applies only to agreements entered into after its effective date or whether it also applies to all pre-existing contracts. It is also unclear what types of practices would be considered a medical specialty subject to the statute. Additionally, it is unclear the date that starts the three-year period, after which the non-competes subject to the statute can be enforced.More concerning is how Section 542.336 affects medical practices in the more rural counties in Florida or in which there are few, if any other, physician practitioners.

These troubling aspects have already been felt by at least one practice, 21st Century Oncology, Inc., which employed all of the radiation oncologists practicing in Lee County, Florida. Earlier this year, 21st Century Oncology sued the State of Florida, moving for a preliminary injunction on the statute, arguing that the law was unconstitutional. In 21st Century Oncology, Inc. v. Moody, the court acknowledged the plaintiff’s comparison of the new statute to the monster from the “fetid depths of a jungle swamp” in the film Creature from the Black Lagoon; however, the court was not persuaded that the statute is as unconstitutional as 21st Century claimed. According to the court, Section 542.336 serves a significant, legitimate public purpose, which does not render the employment contracts between practices and physicians wholly valueless. It, therefore, was not found unconstitutional under current federal case law. Hence, the statute survived 21st Century’s constitutional challenge.

Given the that this new statute survived its first challenge, healthcare practices should review their existing non-competes to determine what, if any, impact Section 542.336 will have on them. Additionally, individuals or entities looking to invest in new practices should be mindful of the new statute when considering the acquisition. Such investors may want to consider other means to entice practitioners to stay on, such as deferred compensation plans.

John C. Getty
jgetty@williamsparker.com
(941) 329-6622

Reinforcing Florida Employers’ Ability to Protect Valuable Business Relationships

Florida employers and their attorneys received good news in September when the Florida Supreme Court finally issued its opinion in White v. Mederi Caretenders Visiting Services of Southeast Florida, LLC, 42 Fla. L. Weekly S803a (Fla. 2017). At issue in White, was whether referral sources could constitute protectable legitimate interests under Florida Statute s. 542.335. The Florida Supreme Court answered this question in the affirmative, holding that referral sources can be protectable interests sufficient to support a restrictive covenant in a non-compete/non-solicitation agreement.

For more information on how employers can protect their valuable information and business relationships see our previous post.

Jennifer Fowler-Hermes
jfowler-hermes@williamsparker.com
(941) 552-2558

Protecting Your Valuable Business Information and Relationships

When survey after survey of America’s workforce confirms that a large majority of employees admit to taking data from their current or former employers without permission, safeguards to protect proprietary and confidential information, including trade secrets, become a priority. The loss of corporate data can be devastating. When a former employee or former business owner solicits business contacts or employees, the results can be equally damaging. In today’s highly competitive marketplace, it is essential for businesses to have a well-developed plan in place to protect corporate data and business relationships. Such plans should employ several tools, including, but not limited to, appropriate security safeguards, confidentiality policies, and agreements containing restrictive covenants.

As discussed in a May 2016 blog post, a federal civil remedy became law and employers no longer are limited to state court remedies to combat a misappropriation of trade secrets.

Restrictive Covenants in Florida – In Florida, a business can use restrictive covenants to obtain a promise from an employee, independent contractor, officer, agent, or even a seller of an acquired business not to engage in any behavior contrary to its business interests. Certain restrictive covenants protect specific interests. For example, a covenant “not to compete” is generally a promise that the employee, independent contractor, officer, agent, or seller will not be involved, in any capacity, in a competitive business in a certain geographic area for a certain time period. Other restrictive covenants include covenants “not to solicit” the employer’s customers, clients, donors, or current employees and covenants “not to disclose” the employer’s confidential business information.

Enforcement of restrictive covenants in Florida is governed by statute. The current statute provides that the enforcement of contracts that restrict or bar competition is permitted as long as the restrictions are reasonable in time, area, and line of business. Additionally, the contracts must be in writing and signed by the persons agreeing to the restrictions. To enforce a restrictive covenant, a business must be able to demonstrate that the covenant it seeks to enforce was based on the need to protect a “legitimate business interest(s)” and that the contractual restraint is reasonably necessary to protect such interests. Florida courts deem restrictive covenants not supported by a legitimate business interest to be unenforceable. In determining whether a restrictive covenant is properly supported, Florida courts may not take into consideration the relative hardship the enforcement of a restrictive covenant would have on the person against whom enforcement of the agreement is sought.

To read more on restrictive covenants, Florida’s Uniform Trade Secrets Act, and best practices for protecting information and relationships see the full article in Williams Parker’s recently published edition of Requisite, a firm publication offering insights on important legal issues. Additionally, you may view the digital version of Requisite in its entirety for more articles on topics critical to senior executives in managing their businesses and the associated risks.

Jennifer Fowler-Hermes
jfowler-hermes@williamsparker.com
(941) 552-2558