Noncompete Agreement Tips and Mistakes to Avoid After COVID-19

By: Jeff Cohen

COVID is proving to be so burdensome on employers that we are seeing lay-offs and furloughs all over the country. As the virus curve bends back in a positive direction and physician and patient concerns for safety wane, patients will stream back to office. But what happens to the laid off (or furloughed) employees and contractors with non-competes? Will they come back or will they have moved on, possibly in a way that violates their noncompetes? And will a court think a noncompete has been violated when an employee or contractor was let go and there is no specific provision in their written contract that allows the employer to immediately let someone go without notice due to this type of situation? How will the COVID based lay-offs and furlough affect noncompetes? The short answer is we don’t yet know, but widespread lay-offs and furloughs may result in a flood of cases being filed because (1) many have been let go, (2) there likely isn’t a provision in their contract with the employer that specifically authorizes that sort of termination, and (3) a contract’s “breach” (e.g. no contract based allowance for the prompt termination) is traditionally a defense to an action to enforce a noncompete.

The COVID Issue

Though there is an exception for unusual specialties or where there is essentially a community need, noncompetition covenants are generally enforceable in Florida with respect to doctors and other healthcare professionals. Many people think doctors in particular can’t be restricted from practicing medicine under any circumstances. That is just not true.

Getting to the bone of the issue, noncompetes are enforceable in Florida if:

1. The geographic zone in the noncompete is reasonable. This depends on where the practice draws its patients. If patients come to the practice from just down the street, a ten mile radius is probably overly broad;
2. The duration is two years or less (though it can be longer in some circumstances);
3. The employer has complied with all of the terms of the employment agreement. If the employer has breached the contract that contains the noncompete, most courts will reject a claim to enforce it;
4. The employer does the type of thing that the departing employee does. If the employee is the only person performing toe surgery for instance, and the practice will not provide toe surgery services once the employee leaves, the practice probably does not have a legitimate business interest to protect by enforcing the noncompete; and
5. Stopping the ex employee from practicing in the geographic zone does not create a healthcare crisis or shortage. This is tough. Very few practice areas are in such dire straits that the departure of one doctor will adversely effect the provision of such services in the area.

The big COVID issue relates to item 3 above. The situation would be (1) the healthcare professional is let go with little or notice because of COVID, and (2) the contract doesn’t specifically allow such prompt termination. In effect, the contract has been breached, and a breached contract is a primary basis for a court throwing out the noncompete enforcement action. Add to that the fact that some professionals who are breaching have a duty to minimize their economic damages, and now the whole issue of noncompete enforcement is potentially in disarray. This issue isn’t likely to be clarified until a case makes its way through a trial court, is appealed and there is a reported case (or two). Regardless, the virus is sure to spawn litigation on the issue.

Noncompete Tips

While the COVID stuff will take some time to settle out. Here are the top two mistakes that healthcare businesses and healthcare professionals make with respect to noncompetes:

Mistake #1 – Racing to litigation

Going to court is a crap shoot. Once litigation begins, it takes on a life of its own and costs can be nuts, sometimes in the hundreds of thousands of dollars. You may think it’s a simple noncompete case. There rarely is such a thing. And if you sue someone on a non compete breach, they may turn around and sue you in the same lawsuit for something. And….insurance does not cover any such claims. That means you are paying out of pocket for a lawsuit, the certainty of which can never be guaranteed and which will seem endless once you run out of patience or money for the process.

If you are an employer, ask yourself the following two questions before commencing litigation:

1. Does it make good economic sense to enforce the noncompete?
2. Is there a way to work out a deal with the employee, short of litigation?

In some situations, it makes no business sense to pursue a noncompete. For instance, if the employee has been employed for only several months and if the patients are all referred to the prior employee by the employer, then the employee may not be a competitive threat to the employer. The employer could simply a replacement doctor at some point and refer the business to the new doctor. Case closed.

It is also possible to work out settlements before going to court. For instance, you might avoid litigation by lowering the geographic zone, the duration. You can negotiate a buy out of the noncompete, since both the employer and the employee will likely want clarity, even at a price.

If you are an employee who wants out of the noncompete, sit down with the employer and see if you can agree on a way out, so that both of you can have peace and move on. if you’re an employer, assuming you’ve decided it’s important to protect the business with the noncompete, see if there is a deal to be made that entails the employee agreeing to the terms of the noncompete, even a modified one.

Mistake #2 – Doing it Yourself

Noncompetes are governed by state law. There are both statutes and cases that inform lawyers about what types of noncompetes are enforceable and which are not. Do not work off of an old contract to create a new noncompete, since the laws (and the cases that construe them) change often. Do not use a friend’s noncompete, since you will not be able to tell if it will be enforceable at this time or under the circumstances that apply to you. The enforceability of noncompetes is extremely fact specific. Since noncompetes are strictly construed by courts, drafting them requires a trained eye.

Here’s an example: an employee was employed in a year to year contract which expired at the end of 12 months. The contract contained a noncompete, which said in part that it applied upon the “termination” of the contract. Since, however, the contract was not terminated (it expired), the noncompete was not enforceable. True story!

If you are an employee, do not accept comments like “Well, they’re unenforceable anyway, so go ahead and sign the contract.” Also, make sure the noncompete is reviewed by a Florida lawyer with expertise advising employers and employees of healthcare businesses. They’re unique and handled uniquely in Florida. Do not use an immigration lawyer. Do not use a lawyer in Illinois or your neighbor who’s a “really great guy.”