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Certain Physician Non-Competition Agreements are now Unenforceable Under New Florida Law
Physician employers (“Medical Practices”) often ask physicians to sign non-competition agreements in order to protect the Medical Practice’s legitimate business interests, such as confidential information, existing patient relationships, specialized training, or professional goodwill. In Florida, a non-competition agreement is generally upheld if the non-competition covenants are reasonable in time, geographic area, and line of business. Under Florida law, a party often must prove that a non-competition agreement violates public policy in order to invalidate a non-competition agreement. In June, Florida passed a law that, in counties where all of the medical providers of a given specialty are employed by the same entity, vitiates the enforceability of non-competition agreements. Thus, a Medical Practice employing physicians who provide services in a medical specialty at a monopolistic level in a given Florida county should be aware that their non-competition agreements may no longer be valid. With the enactment of this new law, a physician covered by this new law may practice in a county which was deemed to be a prohibited geographic area in the non-competition agreement without having to prove that such non-competition agreement violated public policy. The number of physicians and Medical Practices affected by this new law is currently unknown. However, the United States District Court for the Northern District of Florida recently issued a ruling analyzing this new law, and the court’s decision should be of particular interest to Medical Practices operating at a monopolistic or near-monopolistic level in a given Florida county and physicians employed by such Medical Practices.
Until the recent passage of a new law, Florida physicians signing non-competition agreements were subject to the general rules regarding non-competition agreements. For example, a physician might sign a non-competition agreement which restricts the physician from practicing in geographic areas where the Medical Practice does business. However, Florida Statutes § 542.336 disrupts the status quo for non-competition agreements entered into between certain physicians and Medical Practices. Florida Statutes § 542.336 declares that all non-competition agreements entered into between physicians practicing a “medical specialty” in a county where one entity employs or contracts with all physicians who practice such specialty in such county are void and unenforceable because such non-competition agreements are not supported by a legitimate business interest. The restrictive covenants contained in such non-competition agreement remain void and unenforceable until three years after the date on which a second entity that employs or contracts with one or more physicians who practice that specialty begins serving patients in that county. The professed public purpose of this new law was to reduce healthcare costs and improve patient access to physicians. This new law took effect on July 1, 2019. However, the new law does not specifically address whether this law applies retroactively to contracts already in effect on July 1, 2019, or prospectively to contracts entered into on or after July 1, 2019. Despite this uncertainty, physicians subject to non-competition agreements have begun to practice their medical specialty in a geographic area prohibited by the terms of their respective non-competition agreements. As expected, Medical Practices have called into question the validity of this new law.
In 21st Century Oncology, Inc. v. Moody, Case No.: 4:19cv298-MW/CAS; 2019 WL 3948099 (N.D. Fla. Aug. 21, 2019), a Medical Practice that employs a variety of physicians in several Florida counties, sought to enjoin the enforcement of Florida Statutes § 542.336 on the basis that this law violated the Contracts Clause, Due Process Clause, and Equal Protection Clause of the United States Constitution. The Medical Practice in this case employed all nine radiation oncologists practicing in Lee County, Florida. The nine radiation oncologists were parties to non-competition agreements with the Medical Practice. Within the past year, five of those oncologists severed their relationships with the Medical Practice. Following the passage of Florida Statutes § 542.336, some of those oncologists began to practice radiation oncology in Lee County, presumably in contravention of the geographic restrictions imposed in their non-competition agreements.
Judge Walker of the United States District Court for the Northern District of Florida denied the Medical Practice’s motion for a preliminary injunction because the Medical Practice was unable to make the requisite showing as to any of its claims. Although the passage of Florida Statutes § 542.336 was a significant impairment on the Medical Practice’s employment contracts with the physicians, the court determined that the degree of this impairment did not outweigh the significant public purpose of providing access to affordable healthcare. Furthermore, the court found that the regulation of physician non-competition agreements on the basis of the county where services are provided was a reasonable choice. The court stated that it was feasible that the Florida legislature passed this law out of a concern for the ongoing trend of consolidating physician services and how such consolidation affects access, costs, and consumer choice. Thus, the court found that the Florida legislature rendering certain non-competition agreements void was an acceptable response to these concerns. As a result, the court denied the Medical Practice’s motion for a preliminary injunction.
Florida Statutes § 542.336 adds another wrinkle to the relationship between Medical Practices and physicians. At this point, more research is needed to determine how many Medical Practices and physicians will be affected by Florida Statutes § 542.336. The new law does not specifically address whether it applies retroactively to non-competition agreements already in effect on July 1, 2019, or prospectively to non-competition agreements entered into on or after July 1, 2019. However, the physicians in 21st Century Oncology, Inc. likely signed their non-competition agreements prior to July 1, 2019. Thus, Medical Practices and physicians should understand that this new law may apply retroactively to existing non-competition agreements. As noted in the court’s opinion, the consolidation of physician services is a nationwide trend arguing that this new law could improve patient access to physicians.
