Healers Barred from Healing: Physician Noncompete Agreements.

Author:Ronner, Amy D.

In Anton Chekhov's story, "The Grasshopper," Olga Ivanovna marries a physician, Osip Stepanitch Dymov, whom she sees as a "simple, very ordinary, and in no way remarkable man." (1) Olga denigrates her husband while she reveres others as "celebrities." What does Chekhov's Olga have to do with restrictive covenants? The conclusion of this article provides an answer.

In general, the law of noncompete agreements is a conglomerate of competing interests, rights, and policies. (2) Employers assert the need to protect legitimate business interests along with entitlement to freely enter into and enforce contracts. Employees, arguing they have a right to work, unite with basic societal interests in promoting a free marketplace and preventing monopolies. While lawyers have disentangled themselves from such confliction, physicians have not. In fact, attorneys are unique because no other employee, professional or fiduciary, is exempt from the binding effect of a restrictive covenant.

Today, entities that hire physicians, like Health Maintenance Organizations (HMOs), hospitals, and practice groups, use restrictive covenants to bar former employees from engaging in or creating a competitive medical practice within a geographic region for a set period of time. (3) These covenants also surface in partnership agreements and contracts for the sale of medical practices. In fact, they have become commonplace in the medical community partly because physicians, who have become increasingly mobile, change jobs more frequently now than in the past. (4) Also, contemporary medical practices, defining themselves as commercial entities, use business devices to protect their bottom line.

Physicians execute such contracts because they are routinely presented as adhesion contracts. Also, in medicine, which is heavily regulated, it is sometimes easier for doctors (particularly those with no acumen for business) to join an extant HMO, hospital, or group with an administrative office than it is for them to try to set up shop on their own. Moreover, newly minted physicians, some burdened with debt and ravenous for that first real paycheck, can be predisposed to jumping into a job as quickly as possible. At times, physicians, who might be uncomfortable with lawyers, just sign off without representation.

Before tying the knot with the employer, some doctors do not envision a divorce on the horizon or consider the impact the restriction might have on their future mobility, financial health, and ability to continue practicing medicine. (5) Sometimes the noncompete agreement is so prohibitive that it blocks physicians from making a move that might be better for themselves and their patients. When a restraint does not immobilize the doctor, it can still be life changing --it can force professionals not only to relocate, but also to jettison years of training for a new niche. The impact that might be less apparent, but one conceivably more pernicious, is the dilemmatic bind such covenants foist on doctors, who have an ongoing ethical responsibility to the very patients they are forced to abandon. (6)

In contrast, the American Bar Association and a Florida ethics opinion in conjunction with Rules of Professional Conduct of The Florida Bar disfavor restrictive covenants for lawyers and mandate they be narrowly construed to protect the lawyer-client relationship. (7) Consequently, when lawyers leave firms, they can go where they please and bring their clients with them. In four steps, this article shows why physicians should enjoy the identical freedom, mobility, and right to continuously care for their patients.

Overview of Noncompete Agreements in Florida

English common law, frowning on noncompete clauses, deemed them per se invalid because they imposed personal hardship on both employees and the public. (8) Today, most states, including Florida, enforce them. (9) The present statute, which governs all such noncompete agreements, is F.S. [section]542.335. (10) In 1996, its sponsors and drafters, John A. Grant, Jr., and Thomas T. Steele, praised their brainchild as effectuating the consummate balance between protecting an employer's "legitimate business interests" and infringing minimally upon an employee's right to earn a living. (11) The history of Florida's restrictive covenants, ostensibly rebutting Grant and Steele's contention, discloses what has been a steady march toward imbalance--toward tipping the scales heavily in the employer's favor.

After 1953, there was a shift away from the common law "rule of reason," which disfavored restrictive covenants. (12) From 1953 to 1990, the governing statute, [section]542.12, authorized "contractual restrictions upon competition." (13) The Florida Supreme Court, which upheld [section]542.12 against equal protection and due process challenges, explained that the statute aims to "protect the legitimate interests of the employer" (14) and give employers a way to "prevent their employees and agents from learning their trade secrets, befriending their customers[,] and then moving into competition with them." (15) Judicial decisions under [section]542.12, however, recruited critics and among them were Grant and Steele, who felt that such emphasis on a "contract-oriented" methodology "led to a hodge-podge of conflicting and unprincipled decisions." (16) Then in 1990, [section]542.33 was born, but it, too, did not appease Grant and Steele:

It created a standardless "unreasonableness" defense; it created a standardless "contrary to the public health, safety or welfare" defense; it shifted the focus of enforcement to "irreparable injury;" it erroneously suggested that a "customer list" need not be a trade secret to be granted a measure of protection by contract; and it specified narrow instances of presumptive "irreparable injury." (17)

In 1996, F.S. [section]542.335 interceded to redress that putative rampant "standardlessness" of prior law, but in the process it effectually hobbled employees. (18) The current statute requires a court to "construe a restrictive covenant in favor of providing reasonable protection to all legitimate business interests...." (19) It forbids courts to use "any rule of contract construction ... to construe a restrictive covenant narrowly against the restraint, or against the drafter." (20) With injunctions, it is apodictic that parties seeking the equitable remedy are the ones who bear the burden of proving, among other things, that they will suffer irreparable injury. (21) The 1996 statute foists the onus of proving irreparable injury not on the remedy's seeker, but on the impacted employee. (22) The statute likewise erases what is the traditional balancing of burdens by barring courts from "considering] any individualized economic or other hardship that might be caused to [the employee]." (23)

The present statute, however, does toss employees a few scraps: For example, it permits courts to "consider the effect of enforcement upon the public health, safety, and welfare," but with respect to this, it both giveth and taketh away. (24) That is, another provision requires the court to "articulate specifically" the public policy precluding enforcement and also find "that the specified public policy requirements substantially outweigh the need to protect the legitimate business interest or interests...." (25) The law does authorize courts to modify the restraint if the employee can meet his or her burden of establishing that it is "overbroad, overlong, or otherwise not reasonably necessary to protect. the legitimate business interest or interests." (26) Further, the court may factor in "all other pertinent legal and equitable defenses," including the employer's breach of contract, unclean hands, latches, waiver, and lack of consideration. (27)

Even with such proemployer legislation, a party may not (at least theoretically) enforce a restrictive covenant just to eliminate competition, but instead must "plead and prove the existence of one or more legitimate business interests...." (28) In this regard, the statute supplies a nonexhaustive menu of "legitimate business interests," which can include "valuable confidential business or professional information that otherwise does not qualify as trade secrets," the "substantial relationships with specific prospective or existing customers, patients, or clients," and "[e]xtraordinary or specialized training." (29) Incidentally, as discussed below, little about the "legitimate business interests" provision is perfectly clear.

Of course, drafters can never guarantee a pellucid, definitive, legislative response to every conceivable question that might arise in perpetuity, but with Florida's restraint statute much hangs in limbo. To echo the gripes of the law's own sponsors and drafters, who had faulted legislative predecessors, the current version has itself spawned unresolved issues, "standardlessness," and its own "hodge-podge of conflicting and unprincipled decisions." (30) By way of example, it is not settled if and when an employee's mere access to confidential information justifies enforcement of the restraint. (31) It is also murky what constitutes "extraordinary or specialized training," (32) and whether a prevailing nonparty, like a competing new employer, may recover fees. (33)

An Implicit Recognition That Physicians Are Different

While some of the unanswered questions pertain to all businesses, our courts have visibly struggled with the task of applying generic employment law to what is essentially sui generis: namely, the arena of medical professionals. If we view the physician restrictive covenant decisions as a gestalt, what we detect is a conscious, or even possibly unconscious, bent on the part of Florida judges to mitigate the harshness of the law and give employees a break when the employees happen to be doctors. This is apparent in at least three areas: rulings that limit the scope of the noncompete agreement, that make...

To continue reading