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When Is A Non-Compete Clause Not A Non-Compete Clause?

Question: When is a two year, fifteen mile physician non-compete clause not enforceable?

Answer: When the physician's former employer does not have a legitimate business interest to support enforcement of that restriction, and when the restriction is subject to Florida law.

A. Florida Law

In Florida Hematology & Oncology Specialists, P.A. v. Tummala, a Florida appellate court recently decided that a hematologist/oncologist could practice medicine near one of his former employer's offices after his employment was terminated, despite the existence of a non-compete clause in the physician's employment agreement. Dr. Tummala's non-compete clause stated that Dr. Tummala was prohibited from the practice of medicine for two years within a fifteen mile radius of his former employer's offices.

According to Florida law, non-compete clauses are enforceable only to the extent that they protect legitimate business interests. In this case, the court held that the employer's legitimate business interest was limited to the employer's existing patients at the time Dr. Tummala's employment was terminated. The court did not believe that the employer had a legitimate business interest in patients who had never been seen by either Dr. Tummala or his employer. As a result, while the court prevented Dr. Tummala from soliciting or accepting his former employer's patients, Dr. Tummala was not prevented from opening his practice within the prescribed radius.

Of course, like many specialists, hematologists and oncologists rely on referrals from other physicians, and the court's ruling allows Dr. Tummala to continue to accept referrals of new patients from referral sources he met while working for his old employer.

B. Maryland law

While a Maryland court need not follow this Florida case, a Maryland court could choose to do so, because Maryland too requires an enforceable covenant not to compete to be based on an employer's legitimate business interests.

Curiously, radius restrictions involving doctors have historically been looked upon with favor by courts, because they allow a doctor to treat former patients, as long as the doctor locates outside of the prescribed radius. Accordingly, even if a court from another jurisdiction chooses to follow this Florida decision, an employer might find that it can only prohibit a former employee from treating former patients within a prescribed radius.

Whether or not this case starts a trend, at the least, it adds a new wrinkle to the always evolving controversies surrounding the enforceability of physician non-compete clauses.

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Date

09.23.06

Type

Publications

Authors

Rosen, Barry F.

Teams

Health Care