The Florida Legislature has enacted a new statute impacting non-compete agreements for certain specialty physicians, effective June 25, 2019. Pursuant to Florida Statute § 542.336, there is no “legitimate business interest” to support non-compete agreements for physicians licensed under Chapter 458 and 459 of the Florida Statutes, where there is only one entity that employs all of those physician specialists. In other words, if there is medical practice that employs all the radiation oncologists in a county, then a non-compete agreement between that practice and its physicians may be unenforceable. Peter Mavrick is a non-compete lawyer who has extensive experience with non-compete covenant litigation.
Pursuant to Florida Statute § 542.336:
A restrictive covenant entered into with a physician who is licensed under chapter 458 or chapter 459 and who practices a medical specialty in a county wherein one entity employs or contracts with, either directly or through related or affiliated entities, all physicians who practice such specialty in that county is not supported by a legitimate business interest. The Legislature finds that such covenants restrict patient access to physicians, increase costs, and are void and unenforceable under current law. Such restrictive covenants shall remain void and unenforceable for 3 years after the date on which a second entity that employs or contracts with, either directly or through related or affiliated entities, one or more physicians who practice such specialty begins offering such specialty services in that county.
- 542.336, Fla. Stat. (2019). A non-compete agreement is an example of a restrictive covenant.
Section 542.335(1)(b) of the Florida Statutes states, in pertinent part, “the person seeking enforcement of a restrictive covenant shall plead and prove the existence of one or more legitimate business interests justifying the restrictive covenant….” “Any restrictive covenant not supported by a legitimate business interest is unlawful and is void and unenforceable.” Fla. Stat. § 542.335(1)(b). The significance of section 542.336 is that it renders non-compete agreements unenforceable for physician specialists where only one entity employs them all. Non-compete agreements in such counties will remain unenforceable for a period of three years after a second entity employs these physician specialists in that county.
There is at least one case being litigated over, among other things, the constitutionality of the new statute. The case is 21st Century Oncology, Inc. v. Ashley B. Moody, et al., U.S. District Court for the Northern District of Florida Case No. 4:19cv298-MW/CAS. 21st Century Oncology, Inc.’s (“Century”) filed a lawsuit to enjoin application and enforcement of section 542.336 on the basis that it violates the Contracts Clause, Due Process Clause, and Equal Protection Clause of the United States Constitution.
Century alleged that it employed all nine of the radiation oncologists practicing in Lee County, Florida. Century had all its physicians sign employment agreements containing a non-compete provision. Within the past year, five of the nine radiation oncologists terminated their relationships with Century. Some of those five began practicing radiation oncology in Lee County. Century argued that section 542.336 unconstitutionally impairs its non-compete agreements with its current and former employees, and that it is special interest legislation that does not serve any legitimate public interest. Along with the lawsuit, Century filed a Motion for Preliminary Injunction.
On August 21, 2019, the District Court denied Century’s Motion for Preliminary Injunction concluding that Century has not shown a substantial likelihood that its claims will succeed on the merits. To determine if the temporary injunction should be granted, one of the factors that the plaintiff must show is that it has a substantial likelihood of success on the merits. Colucci v. Kar Kare Auto. Group, Inc., 918 So. 2d 431, 438 (Fla. 4th DCA 2006).
The District Court found that section 542.336 substantially impairs Century’s employment contracts, but it does not violate the Contracts Clause of the United States Constitution, because it serves a significant, legitimate public purpose. Section 542.336’s stated public purpose is to reduce healthcare costs and improve patients’ access to physicians. Century contended that section 542.336 is intended to serve the private benefit of a small special interest group rather than any legitimate public purpose. Century contends it serves the private benefit of the five physicians who left Century’s employment, but not the general public. The District Court concluded, however, that the record at that stage of proceedings did not support that contention. There was also insufficient evidence to support that Century was the only entity in Lee County to employ radiation oncologists.
The record reflected that the noncompete agreements at issue were not standalone contracts but are instead considered part of the employment agreements between Century and its physicians. The District Court held that though section 542.336 voided the non-compete provisions, it did not substantially impair the remainder of the employment contracts, nor did it undo the past performance of the contracts or the validity of the current agreements.
The District Court similarly found Century’s due process and equal protection arguments unpersuasive based on the current court record. The District Court acknowledged, that “[t]he record reflects considerable uncertainty regarding the likely effect of noncompete agreements on markets for specialist medical services, especially concerning the particular noncompete agreements at issue in this case.” 21st Century Oncology, Inc. v. Ashley B. Moody will proceed to the discovery phase of the case.