Monster of a Florida Non-Compete Statute Survives Challenge

Earlier this year, the Florida Legislature enacted a statute that some claim is too similar to a Halloween movie monster. Much like all good movie monsters, this statute, Section 542.336 of the Florida Statutes, was created with the best of intentions. According to the legislative history, the statute was designed to combat the effects of the increasing concentration and consolidation of physician services, which reduced patients’ access to physicians and increased costs. To accomplish these goals, the statute alters existing Florida law on restrictive covenants, colloquially referred to as non-competes, which are usually enforced as long as they were reasonable in geographic scope and duration as well as supported by legitimate business interests.

Section 542.336, though, nullifies certain types of non-competes. It specifically nullifies non-competes that prohibit physicians with a specialty from competing in the same county with their former employers if that healthcare entity employs or contracts every other physician with that specialty in that county. Such non-competes are nullified until three years after another healthcare entity has begun offering the same medical specialty services in the county.

But, like any movie monster released into the wild, the statute has some troubling aspects. As an initial matter, it is wholly unclear whether the statute applies only to agreements entered into after its effective date or whether it also applies to all pre-existing contracts. It is also unclear what types of practices would be considered a medical specialty subject to the statute. Additionally, it is unclear the date that starts the three-year period, after which the non-competes subject to the statute can be enforced. More concerning is how Section 542.336 affects medical practices in the more rural counties in Florida or in which there are few, if any other, physician practitioners.

These troubling aspects have already been felt by at least one practice, 21st Century Oncology, Inc., which employed all of the radiation oncologists practicing in Lee County, Florida. Earlier this year, 21st Century Oncology sued the State of Florida, moving for a preliminary injunction on the statute, arguing that the law was unconstitutional. In 21st Century Oncology, Inc. v. Moody, the court acknowledged the plaintiff’s comparison of the new statute to the monster from the “fetid depths of a jungle swamp” in the film Creature from the Black Lagoon; however, the court was not persuaded that the statute is as unconstitutional as 21st Century claimed. According to the court, Section 542.336 serves a significant, legitimate public purpose, which does not render the employment contracts between practices and physicians wholly valueless. It, therefore, was not found unconstitutional under current federal case law. Hence, the statute survived 21st Century’s constitutional challenge.

Given that this new statute survived its first challenge, healthcare practices should review their existing non-competes to determine what, if any, impact Section 542.336 will have on them. Additionally, individuals or entities looking to invest in new practices should be mindful of the new statute when considering the acquisition. Such investors may want to consider other means to entice practitioners to stay on, such as deferred compensation plans.