Drafting and Using Enforceable Non-Compete Agreements

I am including below an article I recently had published in Florida Medical Business Journal, Florida’s leading medical business journal. I apologize in advance to those who practice outside of Florida. Nevertheless, the principles of Florida law are very similar to those in most of states; therefore, I encourage non-Florida employers and employees to read this article.

If you are using an Drafting and Using Enforceable Non-Compete Agreements Florida Medical Business Journal by Stephen Snyder

Most employers have experienced the disappointment of investing considerable time and resources in a new and promising employee only to see the employee, now well-trained, leave and accept a position with a competitor. Florida physicians and hospitals are not immune from this dilemma and many have sought to address it by requiring new employees to accept restrictive covenants.

A restrictive covenant is an agreement whereby one party attempts to shield itself from the other party’s competition. While there are various types of restrictive covenants, this article focuses on non-competition agreements restricting the ability of a physician to compete with his or her former employer.

It is now a common practice to require new physician-employees to execute restrictive covenants as a condition of employment. However, very few employers know whether such covenants are enforceable or understand how to phrase them so as to best deflect inevitable legal attacks from the competing employees.

This lack of knowledge leads to the utilization of unenforceable restrictive covenants and the defeat of the intentions of hospital and practice employers. To avoid this problem, employers should be aware of the following guidelines when seeking to restrict the ability of its former physicians to compete.

Put it in Writing

Generally speaking, Florida courts will not enforce a verbal agreement by an employee who promises not to compete with his or her employer. Therefore, it is essential to put any restrictive covenant in writing.

Make the Time Period as Short as Possible

Non-competition agreements generally state that certain competitive activities are barred for a specified period of time. If this time period is unreasonably long, the court will not enforce the agreement as written.

Florida courts consider a restrictive time period “unreasonable” if it is not “reasonably necessary to protect the legitimate business interest” of the employing practice or hospital. Legalese aside, the court will decide how long is too long after it understands the employment relationship at issue, the competitiveness of the industry and any other facts it considers relevant.

Unfortunately, there is not one ‘magic’ time period that a practice or hospital can invoke to ensure enforceability. Having said this, Florida courts presume that a timeframe of 6 months or shorter is reasonable and further presume that a time period of 2 years or longer is unreasonable. However, these presumptions are rebuttable.

In choosing a time period restriction, a hospital or practice should take great care not to select longer than is necessary to protect its business interests. Ideally, it is best from a legal standpoint to limit the time period to 6 months. If this does not make business sense, the time period can be lengthened; however it should rarely be longer than 2 years.

Choose the Smallest Possible Geographic Area

Florida courts are reluctant to enforce an otherwise acceptable restrictive covenant if the geographic area is too large. An area is too large if a smaller area would adequately protect the legitimate business interests of the hospital or practice.

In designating a particular restrictive area, a hospital or practice should consider factors such as where the majority of its patients reside and where its facilities are located. Florida courts have upheld restrictive covenants spanning more than 10 miles, while striking restrictive covenants covering less than 1 mile. What makes the difference from one case to another are the particular facts at issue and a Florida court will decide how large is too large based upon these unique facts.

Hospitals and medical practices are utilizing restrictive employment covenants with increasing frequency. The use of such covenants can help hospitals and practices shield themselves from the unfair competition of its former employees. However, it is essential that such employers properly draft restrictive covenants or these covenants may be invalidated by the courts.

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