There have been many articles written about the negotiation and enforceability of physician restrictive covenants, but there are just a few fundamental concepts crucial to understanding and successfully navigating these issues.
1. The Myth of Unenforceability. Many physicians either completely ignore or dismiss the significance of restrictive covenants because of the mistaken belief that restrictive covenants are unenforceable. Except in those states which statutorily ban restrictive covenants, such as California and Kentucky, this is simply not true.
2. Suspect Enforceability. It is true the courts in many states look with disfavor upon restrictive covenants; courts often search for exceptions and methods to invalidate restrictive covenants, because of the significant impact upon the individuals involved. However, this attitude does not make restrictive covenants unenforceable. It simply means that courts respond favorably to the arguments of making sure that the restrictive covenants are reasonable both in time and scope. However, that is certainly no reason for any individual to believe that a court will find a way to minimize the potential harm or impact of a restrictive covenant.
3. Injunctions and Liquidated Damages. Restrictive covenants are often enforced through injunctions, which are court orders specifically prohibiting a physician from violating the terms of a restrictive covenant, i.e. preventing practice within the time and area described by the contract. Injunctions in these matters are issued routinely. Some contracts include liquidated damages provisions, which gives the practice the option of seeking money damages instead of an injunction. If the liquidated damages are fairly low, that might actually be a benefit to the physician, who can argue that the parties have already agreed upon the damages so that an injunction is not necessary. Although the presence of a liquidated damages clause in a restrictive covenant might benefit the physician, it would be a gamble to rely upon that argument.
4. Unenforceability and Breach. The restrictive covenant is part of a contract between the practice and the physician. If the practice breaches its agreement, it is logical and reasonable for the physician to believe that he would not be bound by a contract and a restrictive covenant that have been breached by the practice. That is a legitimate and a reasonable outcome, but it necessarily depends on proving the antecedent breach.
5. Negotiation of Options. The harm and impact of the restrictive covenant is twofold, not only does it prohibit certain practice activities, but it provides the practice overwhelming leverage in future negotiations. Your initial negotiation strategy should always include an attempt to limit the scope of the restrictive covenant so that the physician will later have some reasonable practice alternatives that limit the leverage in this situation.
Thanks to a note form Gus weekly at gus.weekley@wsvlegal.com for notice that Florida enforces restrictive covenants.
