FTC talking about outlawing non-compete clauses

We discussed this at work when it was published last week. It will tie my company’s hands somewhat in acquisitions since the exception to non-competes only applies if a person owns at least 25% of the company being sold.

 

I don't know if the FTC even has the power to do this, but it's interesting. I think they make sense when there's a sale of a business, but I also think they're too widespread. In Florida, there's a carve out for lawyers, and some have argued that there should be a carve out for doctors.

 

Outlawing Non compete would force a shutdown of all athletics at Coral Gables Tech.

 

My understanding from healthcare attorneys is that, while there is not a legally approved carve out for doctors, non-competes are effectively unenforceable in this state (and probably most others). Almost every region across the country has fewer than the recommended MDs of just about every specialty, and so the non-competes run up against limiting needed or even critical supply of medical services to a region. That's not a legal battle that any organization that employs doctors, wants to be seen pursuing, and it's not one they'd ultimately be able to win in courts under almost any circumstances.

 

I can't speak to the total number relative to other professions, but my experience is that they are enforceable against doctors and are used quite a bit in Florida. Here's a Florida Bar article from 2018 addressing this issue:

Healers Barred from Healing: Physician Noncompete Agreements

In general, the law of noncompete agreements is a conglomerate of competing interests, rights, and policies.2 Employers assert the need to protect legitimate business interests along with entitlement to freely enter into and enforce contracts. Employees, arguing they have a right to work, unite with basic societal interests in promoting a free marketplace and preventing monopolies. While lawyers have disentangled themselves from such confliction, physicians have not. In fact, attorneys are unique because no other employee, professional or fiduciary, is exempt from the binding effect of a restrictive covenant.


Today, entities that hire physicians, like Health Maintenance Organizations (HMOs), hospitals, and practice groups, use restrictive covenants to bar former employees from engaging in or creating a competitive medical practice within a geographic region for a set period of time.3 These covenants also surface in partnership agreements and contracts for the sale of medical practices. In fact, they have become commonplace in the medical community partly because physicians, who have become increasingly mobile, change jobs more frequently now than in the past.4 Also, contemporary medical practices, defining themselves as commercial entities, use business devices to protect their bottom line.

Physicians execute such contracts because they are routinely presented as adhesion contracts. Also, in medicine, which is heavily regulated, it is sometimes easier for doctors (particularly those with no acumen for business) to join an extant HMO, hospital, or group with an administrative office than it is for them to try to set up shop on their own. Moreover, newly minted physicians, some burdened with debt and ravenous for that first real paycheck, can be predisposed to jumping into a job as quickly as possible. At times, physicians, who might be uncomfortable with lawyers, just sign off without representation.

Before tying the knot with the employer, some doctors do not envision a divorce on the horizon or consider the impact the restriction might have on their future mobility, financial health, and ability to continue practicing medicine.5 Sometimes the noncompete agreement is so prohibitive that it blocks physicians from making a move that might be better for themselves and their patients. When a restraint does not immobilize the doctor, it can still be life changing — it can force professionals not only to relocate, but also to jettison years of training for a new niche. The impact that might be less apparent, but one conceivably more pernicious, is the dilemmatic bind such covenants foist on doctors, who have an ongoing ethical responsibility to the very patients they are forced to abandon.6

 

Will be interesting to see how the "if you dont like your job get a new one" people come down on this (not really, it will be totally predictable because those people only like the free market when it advantages bosses).

 

I've dealt with this twice in the last 2 years and have been told by 2 different lawyers that they are essentially uninforceable in Florida

 

Fun fact, Jimmy John's used to have a non-compete clause you had to sign to make sandwiches for them!

https://www.cnbc.com/2016/06/22/jimmy-johns-drops-non-compete-clauses-following-settlement.html

You couldnt even work within 2 miles of a Jimmy Johns you quit lol!

 

To clarify, the unofficial opinion I received is that they would not hold up in court if an ex-employer tried to force a non-compete onto an MD in Florida. But that's the opinion of a few individual attorneys, so they could be wrong about how enforceable it would ultimately be if taken to court. Being legal in the state does at least give employers to ability to use it for leverage, though. The threat of being sued for leaving one health organization and starting another practice in the same region is probably a strong deterrent to most individual doctors. Not sure many would take such a leap with just a few attorneys telling them "No way this holds up in court. Pay me tens of thousands of dollars and I'll prove it to you."

 

As the Florida Bar article noted, the trend for many years was very heavily in favor of employers. In recent years, there has been some case law more favorable to former employees at least when it comes to customers and patients who want to stay with them. Having said that, I personally co-handled an appeal not that many years ago wherein a doctor was forced to move their practice a significant distance, were hit with certain advertising restrictions, etc. Perhaps the law has changed and I haven't seen it, but I'm not aware of that.

My perspective is that most young doctors don't want to spend years in litigation fighting their more established and richer former employers and risk getting hit with attorney's fees on top of it all. I know one attorney who speaks to groups of younger doctors to educate them in effort to avoid getting caught up with these contracts in the first place. That's particularly important given that doctors are notorious for making bad business decisions and signing things they don't fully read or understand.

 

I've heard the same thing, but a spiteful boss could put a financial hurting on a worker with lawyer costs, even if they lose ...

 

For those interested, here's another and more recent Florida Opinion (June 2021) enforcing non compete agreements against doctors:

*1277 Surgery Center Holdings, Inc. (SCHI); Tampa Pain Relief Center, Inc. (TPRC); and Armenia Ambulatory Surgery Center, LLC (AASC) (collectively referred to as appellants), appeal an order denying their motion for a temporary injunction filed in their action for breach of employment agreements against Robert Guirguis, D.O.; John Otero, M.D.; Hector Cases, M.D.; Man Le, M.D. (collectively referred to as the doctors); Rodolfo Gari, Jr., M.D.; Charles Friedman, D.O., P.A.; and Physician Partners of America, LLC (collectively referred to as the Gari Entities). We reverse the order in part because the trial court erred in concluding that two of the restrictive covenants in the agreements at issue had not been violated.

***

Thus, appellants presented evidence that Drs. Guirguis, Otero, and Cases *1280 were “employed” by an entity that operates an ambulatory center or outpatient surgical facility within the twenty-five-mile radius and that Dr. Guirguis was an “officer” of an entity that operates an ambulatory center within the twenty-five-mile radius. The trial court erred in interpreting the language of the covenant to only prevent the doctors from having an “owner or operator role in a competing business facility.” In doing so, the trial court failed to consider the clear and unambiguous language preventing the doctors from acting as a “director, officer, manager, employee, member or partner of” an entity that owns or operates an ambulatory center or surgical center within twenty-five miles. When the terms of a noncompete agreement are clear and unambiguous, the contracting parties are bound by its terms. Morgan v. Herff Jones, Inc., 883 So. 2d 309, 313 (Fla. 2d DCA 2004) (citing Emergency Assocs. of Tampa, P.A. v. Sassano, 664 So. 2d 1000 (Fla. 2d DCA 1995)). The evidence showed that Drs. Guirguis, Otero, and Cases violated the terms of the AASC agreement.

***
Surgery Center Holdings, Inc. v. Guirguis, 318 So. 3d 1274 (Fla. 2d DCA 2021)(emphasis added).

 

From experience, courts won't enforce them in the IT world. Their only use is to strong arm / threaten employees.

Good riddance

 

I can see both sides of this. As a general employee… I think non competes limit and suffocate
But
If I was a business owner.. a veterinarian… and my practice grew so I hired another doctor to work at the practice. They could theoretically work for six months and then take a large part of the clientele I had built up over the years. It would be a short cut.
I don’t think keeping someone from switching jobs is good, but can see where a doctor or lawyer or etc… wouldn’t want someone they brought in culturing a large part of the clientele to open their own business.

 

You could apply that rationale to any worker. "We brought him up in the Subway corporate culture and spent weeks training him to make the best sandwiches and building this franchise and he can just go to Jimmy Johns for more money after 4 months!"

 

Maybe but I don’t see that the same. If you brought him up in Jimmy John’s, taught him everything there was to know, he builds up a report with the customer base and then opens Jimmie’s biggies down the street and takes half the customers that you introduced him to .. maybe.
The relationship between the customer and the sandwich artist is quite different than the relationship between a customer and their doctor.

 

They are enforceable under the right circumstances. Just trying to clamp down on competition won't cut it, but if a business can articulate a legit reason for the restrictions, like protecting investments in training, they can be valid.

I won a trial on this recently.

 

But they are a highly effective threat, most employers have better access to lawyers than most employees. Also better connections.

I had a friend who left the company we were working at to start up a one man shop and the CEO sent him a nastygram and spread word around the industry and put him out of business.