Valid Non-Compete Agreement Declared Ineffective: Hard Lessons from Soft Language

Even a valid non-compete agreement can fail to provide the scope of protection that the drafter expects.  In March 2012, Florida’s Fifth Circuit of Appeal decided Heiderich v. Florida Equine Veterinary Services, Inc., 37 Fla. L. Weekly D759a, giving little effect to a valid non-compete agreement. The language in the non-compete agreement only prevented the employee from establishing an office located within a specified geographic area and did not prohibit the employee from conducting business within the geographical bounds. In Heiderich, the employee signed a valid non-compete agreement and was reminded of such upon termination. Within the period of non-compete, the employee established an office just outside the geographic radius, and then delivered services within the non-compete geographical boundaries.

In reversing the lower court’s temporary injunction, the appellate court found that the language in the non-compete only meant that the employee could not establish a physical business location within the 30 mile radius.

“[E]mployee shall not own, manage, operate, control, be employed by, assist, participate in, or have any material interest in any business or profession engaged in general equine veterinary practice located within a thirty (30) mile radius of [FEVS's business address]”

The court found that there was nothing in the non-compete agreement to stop the employee from establishing an office 31 miles from the company and then servicing the clients within 30 miles of the company, ruling that “the non-compete agreement does not prohibit [the employee] from providing . . . services within a 30-mile radius of [the company], so long as her business office is outside that radius.”

The clause only prohibits the employee from “owning or being employed by a business or profession engaged in equine veterinary practice located within a 30-mile radius of FEVs. It does not . . . prohibit [the employee] from practicing equine veterinary medicine anywhere within the 30-mile radius.”

Heiderich is consistent with previous Florida decisions on the issue. In Tam-Bay Realty, Inc. v. Ross, 534 So. 2d 1200 (Fla. 2d DCA 1988), a non-compete agreement stated that the sellers of a real-estate brokerage firm were not to compete with the business in any of the following ways:

“by opening, operating, serving as an officer, director or other employee of any real estate brokerage business located with the geographical boundaries of Pinellas County, Florida…” 

However, according to a Florida court the non-compete agreement did not prohibit the seller from advertising in the phone book, obtaining a local phone number, running advertisements for homes, or listing themselves in business directories within the area the non-compete purported to protect.

The court found that the sellers “did not breach the covenant because they had not competed by ‘opening, operating, serving as an officer or director of any brokerage business located within Pinellas County.’ Rather, the sellers had competed within Pinellas County ‘from a brokerage business located outside of Pinellas County thereby adhering to the literal meaning of the non-compete agreement.”

How does this affect your business?  There is the potential that your valid, negotiated non-compete agreement might leave you exposed to unexpected future competition.  In light of the March 2012 decision in Heiderich, it is more important than ever to re-examine existing non-compete agreements to ensure that they offer meaningful protection and do not just make competing less convenient.

Contact Burr & Forman today to ensure that your business is secure. Burr & Forman’s Non-Compete & Trade Secrets team members would be happy to review your company’s non-compete agreement or answer any further questions you have about protecting your businesses from unfair competition.

Removal of the Six-Year Limitation for Healthcare Non-Compete Agreements in Tennessee

Effective January 1, 2012, the Tennessee legislature has, once again, modified healthcare non-compete agreements in Tennessee.  This change eliminates the six-year limitation on non-compete agreements and extends the statue to include osteopathic physicians.

For most physicians, the change means that a non-compete agreement can now exceed the previous six-year limitation by contract.  However, it continues to prohibit non-compete agreements for physicians specializing in emergency medicine.

Since 2005, the Tennessee Supreme Court has ruled that most non-compete agreements with physicians in private practice were unenforceable as against public policy.  In response, the Tennessee legislature enacted Tenn. Code. Ann. § 63-1-148, which allowed healthcare non-compete agreements for a single six-year period.  In 2010, the Tennessee legislature added an additional amendment that allowed for a second six-year period, provided that the additional six year non-compete agreement was obtained through subsequent negotiations and not an automatic renewal provision.

The latest change now provides that a healthcare non-compete agreement is otherwise presumed reasonable, regardless of the length of employment, provided that the restriction is limited to two years after employment and the non-compete geographic limitation is not larger than the greater of either ten miles from the primary practice or the county of the primary practice. Essentially, the 2012 statutory change removes the expiration of the non-compete agreement and/or its renegotiation after six years.

The statue now provides that a restriction on the right of a healthcare provider to practice the healthcare provider’s profession upon termination or conclusion of the contractual relationship shall be deemed reasonable if: (A) the restriction is set forth in a written document signed by the healthcare provider and the employing or contracting entity and (B) the duration of the restriction is two years or less (after termination) and either i) the geographic restriction is the greater of a ten-mile radius from the primary practice site or the county in which the primary practice of the healthcare provider while employed, or ii )there is no geographic restriction but the healthcare provider is restricted from practicing the healthcare provider’s profession at any facility at which the employing or contracting entity provided services while the healthcare provider was employed or contracted with the employing or contracting entity.

Additionally, an agreement entered into for the purchase or sale of a healthcare provider’s practice, or substantially all of the practices’ assets, may restrict the healthcare provider’s right to practice their profession. That is, provided, that the duration of the restriction and the allowable area of the restriction are reasonable under the circumstances. There shall be a rebuttable presumption that the duration and area of restriction agreed upon by the parties in such an agreement are reasonable.

If you ever have a question about non-compete agreements or have an unfair competition issue, feel free to contact any of the Burr & Forman’s Non-Compete & Trade Secrets team members and we will be happy to assist you.