Florida Court Explains Enforcement of Non-Compete Against Physicians
July 10, 2018
On June 28, 2018, a Florida court issued a ruling that serves as a warning to physicians and other healthcare industry workers in Florida: take non-compete agreements seriously and, when faced with a lawsuit, be aggressive when challenging its enforceability. Specifically, in Ansaarie v. First Coast Cardiovascular Institute, P.A., 2018 WL 3151233 (Fla. 1st DCA 2018), the First District Court of Appeal upheld a temporary injunction entered by a trial court against a cardiovascular surgeon pursuant to non-compete and non-solicit provisions contained in the physician’s employment contract with First Coast Cardiovascular Institute, P.A. (“FCCI”).
As explained below, several best practices and insights can be drawn from this recent non-compete case that are applicable to those in the healthcare industry, including both employers and employees.
Background. FCCI operates cardiovascular medicine and sleep disorder clinics throughout Florida. Several years ago, FCCI decided to focus on substantially expanding its practice in Putnam County, Florida, including constructing a specialty clinic within walking distance of Putnam County Medical Center (“PCMC”). FCCI also made several investments to deepen its relationship with PCMC, such as entering into a contract to provide certain specialty services on behalf of PCMC.
In 2014, in connection with FCCI’s efforts to expand its business in Putnam County, FCCI recruited Dr. Ansaarie, a well-respected interventional cardiovascular surgeon. As is typical in this situation, FCCI marketed Dr. Ansaarie to its patients and referral sources. It also arranged for Dr. Ansaarie to take on a medical director position at PCMC.
As a part of his employment, Dr. Ansaarie entered into an employment agreement with FCCI, which contained both a non-compete and a non-solicit provision. The non-competition provision prohibited Dr. Ansaarie from providing competing cardiovascular services within a five-mile radius of FCCI’s specialty clinic in Putnam County for two years after termination of employment. The non-solicitation provision prohibited Dr. Ansaarie from soliciting an FCCI patient, referral source, or vendor for competing cardiovascular services within the restricted five-mile radius for two years.
After leaving FCCI in March of 2017, Dr. Ansaarie started his own independent practice. While his office was outside of the 5-mile prohibited territory, he performed the cardiovascular procedures at PCMC, located within the 5-mile territory. FCCI then immediately sued to enforce the non-compete and non-solicit provisions. In response, Dr. Ansaarie argued the two restrictive covenant provisions were not enforceable.
As context, under Florida Statute § 542.335, non-compete and non-solicit provisions (collectively referred to as restrictive covenants) are only enforceable to the extent the enforcing party demonstrates: (i) the existence of one or more “legitimate business interests” and (ii) that the restrictive covenant is reasonably necessary to enforce those interests. The statute goes on to provide that the phrase “legitimate business interest” includes, but is not limited to, several categories of protectable business interests, such as:
- Trade secrets as defined by Florida Statute § 688.002(4);
- Valuable confidential information;
- Substantial relationships with specific prospective or existing customers;
- Customer goodwill associated with (i) an ongoing business or professional practice, by way of trade name, trademark, service mark, or trade dress, (ii) a specific geographic location, or (iii) a specific marketing or trade area; and
- Extraordinary or specialized training.
The Court’s Holding. The First District Court of Appeal held that FCCI had a legitimate business interest in enforcing the non-compete provision by looking at factors 3 and 4 above (i.e. substantial relationships with specific prospective or existing customers and customer goodwill associated with their specific geographic location or a specific trade area.)
With respect to substantial relationships with clients, FCCI demonstrated that clients had specifically requested to transfer their files to Dr. Ansaarie. This was enough for the court to hold that FCCI demonstrated a legitimate business interest in its substantial relationships with its existing patients.
Next, the court looked at whether FCCI had shown specific customer goodwill associated with a specific geographic location or trade area. The court held that FCCI had met their burden by: (i) presenting evidence of goodwill relating to physician referral sources, which constitute a legitimate business interest under a recent Florida Supreme Court’s ruling; and (2) proving substantial investments in developing its existing customer base and goodwill in Putnam County, particularly at the PCMC.
Dr. Ansaarie did not challenge the two-year time limitation or the five-mile radius of the non-competition provision. It’s highly unlikely any challenge to the length of the restrictive covenants or the radius of the non-compete provision would have been successful regardless: Florida Statute § 542.335 provides that a restrictive covenant of less than three (3) years is presumed reasonable; and a 5-mile restricted territory is generally considered narrow in the context of the customer base surrounding a large medical center.
Takeaways for Medical Institutions, Physicians, and Other Healthcare Employees. There are several important takeaways from the Ansaarie ruling, including some recommendations:
- First, narrowly tailored non-competes (here a 5-mile radius) are generally enforceable against a physician, if the physician’s primary duties involve seeing patients on behalf of his or her employer. This makes sense: physicians are one of the few professionals that individuals select based, in large part, on their location.
- Second, remember that non-competes and non-solicits are distinct. The court found that it was irrelevant that there was no evidence the physician solicited a specific patient – the breach of the non-compete was enough to issue an injunction, given the legitimate business interests found.
- Third, it appears the physician only fought the restrictive covenants based on whether FCCI had a legitimate business interest in enforcing the covenants. In other words, rather than going on the offensive and finding a basis to counter sue, the physician opted to let the case play out on the claims asserted by FCCI. When challenging restrictive covenants, it is imperative an attorney vet all possible counter-claims. Not only do counter-claims sometimes act to prevent the enforcement of a restrictive covenant, they also serve to provide a court with more than one narrative.
- Finally, while not discussed by the court, it was crucial that FCCI did not delay in seeking enforcement of the agreement. As previously discussed concerning best practices in enforcing non-competes, courts generally will not impose an injunction if the enforcing party delayed by more than a few months.