THE ENFORCEABILITY OF NON-COMPETES IN PHYSICIAN EMPLOYMENT AGREEMENTS: PART 5: PUBLIC INJURY12/17/2014 This is the fifth post in a multi-part series discussing the “rule of reason” test that governs the enforceability of restrictive covenants in physician employment contracts in most states.
In the first post of this series, I introduced the three prongs of the rule of reason test. I mentioned that the first prong of this test requires that the covenant be no more restrictive in terms of time, geography and proscribed activities than is reasonably necessary to protect a legitimate business interest of the physician’s employer. The second post in this series talks about which business interests healthcare employers can legitimately use non-competes to protect. The third post discusses the factors that might convince a court that a covenant is overbroad with respect to time, geography and/or activity, and therefore unenforceable. The fourth post of this series discusses the second prong of the rule of reason test—the “undue hardship” prong—which asks whether the restrictive covenant imposes a hardship on the physician employee that is too excessive to justify enforcement of the covenant. Now, in this fifth post of the series, I’ll discuss the third and final prong of the rule of reason test—the “public interest” or “public injury” prong. A restrictive covenant in a physician employment agreement is not enforceable if it harms the public interest. One would think that this factor would render all physician non-competes unenforceable. If a departing physician can no longer treat the patients of her former employer because of a non-compete, doesn’t that deprive those patient of the right to see the doctor of his or her choice—a right that nearly everyone (outside the healthcare industry, anyway) regards as sacrosanct? Not only do non-competes frustrate patients’ freedom of choice, but they also disrupt continuity of patient care--a critical ingredient to good treatment outcomes. Patients who receive care from a physician whom they know and trust are more likely to comply with doctor recommendations, such as by losing weight and taking medications regularly. Patients are also more likely to seek out preventive care from doctors with whom they have a long-standing relationship. Continuity of care has also been shown to reduce emergency room visits and hospitalizations, and to reduce the cost of healthcare generally--especially for seniors. Considerations of patient choice and patient welfare have motivated the American Medical Association to criticize (with wavering vehemence) the ethics of physician non-competes over the years. In 1933, the AMA resolved that restrictive covenants which prevented free choice of physician were unethical. However, when the AMA’s Judicial Council revisited the issue in 1960, it backed away from that position, ruling that a “reasonable agreement not to practice within a certain area for a certain time, if it is knowingly made and understood,” wouldn’t be unethical. Then, in 1980, the AMA reversed itself again with a Judicial Council opinion which flatly declared that physician non-competes were not in the public interest. The AMA’s current position on this issue (adopted in 1996) can be found in Opinion 9.02. This Opinion condemns non-competes for their tendency to restrict competition, disrupt continuity of care and deprive the public of medical services; and it discourages them generally— except insofar as they are reasonable in duration and geographic scope, and reasonably accommodate patients’ choice of physician. As I’ve mentioned before, courts typically view the doctor-patient relationship as a business asset of the doctor’s employer, just like any other customer relationship. This leads courts to emphasize market concentration as the measure of public harm under the third prong of the rule of reason test, often more so than the harm that will be visited upon any of the departing physician’s individual patients as the result of the covenant’s enforcement. So, if the loss of a physician’s services in a particular geographic area through a non-compete would result in the complete loss of services of that kind in that area, or if it would result in a monopoly over services of that kind in that area, then the courts of most states would not enforce the non-compete. Some courts are also on record as striking down non-competes on account of public injury where enforcement of the covenant would deprive a community of the “availability of a doctor at all times for emergencies.” But the rule of reason test is not applied uniformly among the states—as we’ve already seen. This is no less so with the test’s public interest prong. Missouri and Illinois have distinguished themselves as highly tolerant of physician monopolies created by the enforcement of non-competes. The Supreme Court of Missouri has enforced a physician non-compete even though it created a shortage of surgeons in one area of the state, reasoning that—since shortages existed throughout the state--one community’s unfortunate loss of a surgeon would be another community’s fortunate gain. In doing this, the court effectively eliminated the public interest prong from the rule of reason test in Missouri. The Supreme Court of Illinois has mirrored this reasoning, and one-upped it in irrationality, by ruling that physician shortages in any particular area are self-correcting (and therefore can’t injure the public) because they encourage “young doctors” from outside to relocate to that area, thus alleviating the shortage. (If Mr. Market is really this good at allocating physicians, then how come there are such things as HSPAs, MUAs and MUPs?) Fortunately, most courts aren’t this casually dismissive toward patient welfare and choice. Courts in many states do consider the unique nature of the doctor-patient relationship and the harm that can result when that relationship is severed purely for commercial gain by a non-compete. For example, the Arizona Supreme Court has observed that the “doctor-patient relationship is special and entitled to unique protection,” and has therefore ruled that covenants not to compete involving physicians in that state must be strictly construed in light of their effect on that relationship. In striking down a restrictive covenant between a physician and his gastroenterology group practice employer, the North Carolina Court of Appeals said that the “doctor-patient relationship is a personal one and we are extremely hesitant to deny the patient-consumer any choice whatsoever.” The New Jersey Supreme Court has also directed the lower courts in that state to examine “the degree to which enforcement of the covenant would foreclose resort to the services of the departing physician by those of his patients who might otherwise desire to seek him out at his new location.” The courts of Idaho will also limit an employer’s non-compete insofar as it impedes continuity of care and access for patients to the health provider of their choice. And in one case, the Court of Appeals of Arkansas overturned the non-compete of an orthopedic surgeon prohibiting him from practicing medicine within thirty miles of a particular city because the court viewed the covenant as an “an undue interference with the interests of the public right of availability of the orthopedic surgeon it prefers to use.” Whether a court will perceive public injury in the enforcement of a non-compete often depends on the nature of the services the physician provides and the geographic reach of the restriction. In this way, the third prong of the rule of reason test overlaps with the first. If you’re a dermatologist, a non-compete that spans a radius of 30 miles from your prior employer’s office may not be seen as causing public injury: Traveling 30 miles to see a dermatologist probably isn’t going to kill anybody. But if you’re an oncologist, or an interventional cardiologist with a non-compete that prevents you from practicing your uncommon sub-specialty throughout an entire state, then a court may very well invalidate your non-compete on public interest grounds. Thus, the fewer the doctors within the restricted area who offer services comparable to yours, and the more seriously ill your patients typically are, the more powerful your argument against the enforcement of your non-compete is likely to be under the public interest prong of the rule of reason test. David M. Briglia is an employee-side attorney representing physicians and other healthcare professionals in negotiating their employment contracts with hospitals and group practices and litigating contract and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Rockville, Gaithersburg, Columbia, Baltimore and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County and Baltimore County. This blog is intended for informational purposes only and cannot be relied upon as legal advice.
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THE ENFORCEABILITY OF NON-COMPETES IN PHYSICIAN EMPLOYMENT AGREEMENTS: PART 4: UNDUE HARDSHIP12/17/2014 (This is the fourth in a multi-part series discussing the factors that courts look at when deciding whether a restrictive covenant in a physician employment contract is enforceable.)
In the first post of this series, I introduced the three-prong “rule of reason” test, which most courts throughout the United States use to analyze the enforceability of non-competes. I mentioned that, under this first prong, courts determine whether the covenant is no broader in terms of time, geography and proscribed activities than is reasonably necessary to protect a legitimate business interest of the employer. The second post in this series discusses the business interests of healthcare employers that are commonly seen by courts as protectable by non-competes. In the third post of this series, I discussed the factors that tend to convince courts that a covenant is overbroad with respect to time, geography and/or activity, and is therefore unenforceable. In this, the fourth post of the series, I’m going to move on to the second prong of the rule of reason test—the “undue hardship” prong. A covenant that imposes an “undue hardship” on the physician employee is not an enforceable covenant under the rule of reason test. All non-competes cause at least some hardship to the physician employee. So what kinds of hardship are considered “undue” by the courts? Some are situations we have already discussed. A covenant that is so broad in terms of geography that the physician-employee may be precluded from practicing her specialty throughout an entire state can be seen as imposing an undue hardship on her. Just so, a covenant that precludes a physician from rendering medical services that are broader in scope than the services she rendered on behalf of her former employer, or that precludes her from practicing medicine altogether, are often seen as unduly burdensome and therefore unenforceable—at least as written. There is also some precedent for voiding a non-compete which imposes a severe, personal hardship on a physician employee. For example, in Lewis v. Surgery & Gynecology, Inc., (March 12, 1991), Franklin App. No. 90AP-300, unreported), an Ohio appellate court refused to enforce a non-compete in that case because it found that forcing the physician-employee to relocate to find work would necessarily deprive his daughter (who suffered from elective mutism) of the beneficial, specialized instruction she was then receiving at her community school. The outcome in this case was also influenced by the fact that, when this physician sought employment outside the area restricted by his non-compete, his employer compounded his hardship by providing less-than-flattering references to his prospective employers. Many courts will not enforce a non-compete in situations where an employee—including a physician—has been involuntarily terminated. In some states, including New York, non-compete agreements are automatically invalid when an employee is involuntarily terminated. Of course, there are other states, such as Florida, where your involuntary termination, even without cause, won’t have any impact on the enforceability of your non-compete. But in most states, courts will not enforce a non-compete as against an employee who has been terminated by her employer without good cause. Sometimes, rather than couching this as undue hardship issue, courts view involuntary termination as an outward manifestation of the former employer’s opinon that the employee’s services were of no value to it— that is to say, an admission by the employer that there is no legitimate business interest for the covenant to protect. David M. Briglia is an employee-side attorney representing physicians and other healthcare professionals in negotiating their employment contracts with hospitals and group practices and litigating contract and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Rockville, Gaithersburg, Columbia, Baltimore and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County and Baltimore County. This blog is intended for informational purposes only and cannot be relied upon as legal advice. The Enforceability of Non-Competes in Physician Employment Agreements. Part 3: When Is A Restrictive Covenant Overbroad?
(This is the third in a multi-part series discussing the factors that courts look at when deciding whether a restrictive covenant in a physician employment contract is enforceable. The first post in this series—introducing the three-prong “rule of reason” test which most courts throughout the United States use to analyze the enforceability of non-competes—can be found here. The second post—about the interests that a healthcare employer can legitimately use a non-compete to protect—can be found here.) To enforce a restrictive covenant, it isn’t enough that an employer have a protectable interest. The employer must also show that the restriction imposed is no more burdensome in terms of geography, duration and prohibited activities than is reasonably necessary to protect that interest. 1. Geography. If it’s patient relationships that your employer is trying to protect, then the geographic scope of a non-compete is usually viewed as reasonable if it covers the area where most of your employer’s patients come from, and is often viewed as unreasonable (and therefore unenforceable) if it extends to areas where very few or none of your employer’s patients come from. So, a 30-mile or county-wide geographic restriction in a rural area where patients are accustomed to traveling some distance for their healthcare may be enforceable, but the same restriction in the Greater Washington, D.C. Metropolitan Area—where doctors or nearly any specialty are plentiful and few patients are willing to drive 30 miles for any healthcare service except in the rarest of circumstances—will likely be unenforceable as written. The theory behind geographic restrictions is that they will make it so burdensome on the patient to visit the physician’s new practice that the patient will simply give up and continue seeing the physician’s former employer instead, even if that isn’t what the patient prefers. (“But,” you might ask, “doesn’t that deprive the patient of the right to choose his or her own doctor—a choice that we Americans regard as sacrosanct?” Well, yes, it can…but more on that in a later post.) Geographic restrictions are often expressed as a fixed-mile radius from the location or locations where you will perform your employment duties. Sometimes instead they cover the county or counties where you will work, or even a fixed number of city blocks. And sometimes they apply to locations where your employer has no presence, or locations of your employer where you will never work, or even the entire state in which you are to work. The enforceability of these geographic restrictions is more dubious, and challenges to them are more likely to succeed. A court may refuse to enforce a restrictive covenant that prohibits a physician from providing services in a geographic area where she had never worked during her employment and where her former employer did not maintain an office. Courts also view state-wide restrictions with great skepticism. A geographic restriction which forces a physician to relocate to another state or which deprives her of a sufficient patient base from which to earn an income may also be viewed as unenforceable for imposing an undue burden on the physician employee. 2. Time. As for the duration of the restrictive covenant, courts will enforce a time restriction long enough to give the former employer the opportunity to introduce a replacement for the departed physician and have that person be accepted by the employer’s patients. That is to say (in the words of the New Hampshire Supreme Court) an amount of time necessary to “obliterate in the minds of the public” the association between the physician and her employer. How long this is in your case will depend on your specialty. If you’re a radiologist or surgeon whose relationships with individual patients are sporadic and limited in duration, this may not be long at all. If you are a psychiatrist or family practitioner who’s practice consists mostly of long-lasting, trust-based patient relationships forged through repeat visits, possibly over a number of years, then a longer duration will be likely enforceable. (However, your defense under the public interest prong of the rule of reason test may be stronger). Of course, a covenant that doesn’t contain a time limitation at all, or that is limited only by the lifetime of the physician, is unenforceable on its face in nearly every state. See, for example, House of Vision, Inc. v. Hiyane, 225 N.E.2d 21, 22, 25 (Ill. 1967). 3. Activities. As for the activities you may be restricted from engaging in in competition with your former employer, the closer those activities are to the ones you actually perform for your employer, the more likely the restriction is to be seen as reasonable. Covenants that prevent a physician from providing any and all forms of medical care are not likely to be seen as reasonable. If your practice at your former employer was limited to a single sub-specialty, then a non-compete that prohibits you from practicing a different sub-specialty might also be seen as excessive. Similarly, a covenant that reaches business activities that aren’t actually competitive with those your employer is probably overbroad. A covenant that precludes you from taking a non-competing position with an employer who competes with your former employer are also suspect in some states. See, for example, Lasership, Inc. v. Watson, 79 Va. Cir. 205, 212 (Va. Cir. Ct. 2009). And a covenant that prevents you from owning a minority interest in the stock of a publicly-traded company that may compete in some way with the business of your employer, or engaging in similar forms of “indirect” competition, would also be considered overbroad in some states. See, for example, Patient First Med. Grp., LLC v. Blanco, 83 Va. Cir. 3, 5 (Va. Cir. Ct. 2011). So, if a restrictive covenant is overbroad in terms of time, geography or activity, or a combination of the three, does that mean that the covenant is unenforceable in its entirety? Again, it depends. In some states, courts are authorized to modify an unreasonably overbroad non-compete so as to make it enforceable, by reducing its duration, geographic scope and scope of prohibited activities to an extent that the court determines is reasonable. Other states adhere to what’s commonly called the “blue pencil” rule. If the covenant’s unreasonable provision is logically and grammatically severable from the rest of the text such that you could draw a line through it with a blue pencil, and still have a covenant that is enforceable as so modified, then the court will strike the offending provision and enforce the covenant as so modified. But if the covenant can’t be modified in that way, then the court is powerless to revise the non-compete, and it cannot be enforced at all. David M. Briglia is an employee-side attorney representing physicians and other healthcare professionals in negotiating their employment contracts with hospitals and group practices and litigating contract and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Rockville, Gaithersburg, Columbia, Baltimore and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County and Baltimore County. This blog is intended for informational purposes only and cannot be relied upon as legal advice. (This is the second in a multi-part series discussing the factors that courts look at when deciding whether a restrictive covenant in a physician employment contract is enforceable.)
As I noted in the first post of this series, courts in most states have adopted the “rule of reason” approach to analyzing post-employment non-competes in employment contracts, and will only enforce a non-compete of it protects a legitimate business interest of the employer. An employer can’t use a non-compete just to stifle competition from its former employees; but it can use a non-compete to preempt competition that could be considered unfair because it misappropriates a valuable asset of, or undermines a significant investment by, the employer. So what interests count as protectable? With physician non-competes, four are widely recognized: 1. Patient Relationships. Courts treat the relationship between a physician employer and its patients as a protectable business asset. Courts recognize that the relationship between a doctor and his or her patients can be a close and intimate one, and that a departing physician-employee can exert a “hold” on his or her patients after the physician’s departure. This concern over patient poaching has led a few courts to go so far as to enforce a physician non-compete even at the risk of causing harm to the departing physician’s patients. (“But,” you might ask, “doesn’t that completely ignore the third prong of the rule of reason analysis, the one that one that looks at the injury to the public that enforcing a non-compete might cause? Well, yes, I think so. Fortunately, most courts aren’t as blinkered as that. But more on this topic in a later post.) Whether or not a healthcare employer has a protectable interest in patient relationships is often a function of specialty. Some specialties just don’t lead to the formation of economically valuable, transferrable physician-patient relationships. Radiology is one example; emergency medicine is another. You will find examples of courts declining to enforce non-competes against emergency room physicians due to the absence of a meaningful doctor-patient relationship. In fact, Tennessee goes so far as to outlaw the enforcement of non-competes against emergency physicians by statute. (But be careful: courts may enforce covenants not to compete between emergency room doctors and the physician services group that has placed them in a hospital—the protectable interest in such a case being between the physician services group and its hospital client, rather than between physician-employee and any emergency room patient). You’ll find a difference of opinion among courts as to whether a non-compete can be enforced so as to prevent a physician from treating pre-existing patients—that is, individuals who were patients of the physician before he or she joined the employer. Some courts will enforce non-competes that extend to pre-existing patients; others won’t. In Florida, for example, the state's statute on non-competes defines “legitimate business interest” to include only those specific prospective or existing patients with whom the employer has a substantial relationship. 2. Referral Networks. In specialty practices that depend on a network of referring physicians for patients, an employer’s referral network can be a protectable interest sufficient to justify the enforcement of a non-compete against a departing physician-employee. As with patient relationships, the presence of this interest depends on specialty. If your employer is exclusively a primary care practice, this interest won’t be operative. But if you’re in a surgical practice or another specialty, it’s likely to be a different story. 3. Proprietary Information. Just like other businesses, employers of physicians can use non-competes to protect the confidentiality of business information. Here’s where contractual non-competes and trade secrets law converge. (Non-competes really are just a crude and redundant form of trade secret protection when you get right down to it). Courts will enforce non-competes to protect unauthorized disclosure of confidential, competitively-sensitive business information. However, I’m not aware of a modern case in which a court has done so except where a former physician employee has misappropriated information that actually constitutes a trade secret under the Uniform Trade Secrets Act in force in that state. An interesting example of this is the Delaware Chancery Court’s decision in Dickinson Medical Group v. Foote. Dr. Foote was her hospital’s only board-certified oncologist (and by her account, the only board-certified oncologist south of Dover, Delaware) before she left her employment with that hospital, taking with her a computer print-out of all of the patients she had treated with chemotherapy while she was employed there. Dr. Foote argued that she did this because she had a professional and ethical responsibility to offer continuity of treatment to her patients. (This is a reasonable argument: Under AMA Ethics Opinion 10.01, a physician may not discontinue treatment of a patient as long as further treatment is medically indicated without giving the patient reasonable assistance and sufficient opportunity to make alternative arrangements for care.) The hospital, however, argued that the patient list was trade-secret information. The judge agreed, and enjoined Dr. Foote from contacting her former patients. In doing so, he observed: [The hospital’s argument] lacks the ring of humanitarianism that once was associated with the practice of medicine. Prior to this application, I never had reason to equate a list of persons suffering from cancer and other illnesses with a proprietary 'customer list' as that term is normally employed in the world of commerce. But I guess business is business, regardless of the form it takes. Lesson learned: If you decide to leave your employer, do not take patient lists, referral lists, or other confidential business information of your employer with you. Doing so will greatly improve your prior employer’s odds of getting your competitive practice enjoined—if not under a non-compete, then under trade secrets law. Inducing the employees of your former employer to leave its practice and take up with yours is also grounds for trouble under state unfair competition laws. (Note: Lack of access to patient records can put the employee-physician in an ethical and liability bind. Your employment agreement should spell out who is responsible for contacting your patients when you depart from the employer’s practice. Failing to notify a patient of your impending departure may violate laws in your state concerning patient abandonment. Arguing that you contacted a former patient in violation of a temporary restraining order or preliminary injunction because you believed in good faith that you had an ethical obligation to do so might be a successful defense against charge of criminal contempt—but never willingly put yourself in a position where you need to lean on that argument. Your employment agreement should also give you the right to access patient records from your employer if you should need them to defend yourself against a malpractice claim or administrative proceeding after your employment ends.) In addition, if you are joining a medical practice known for a unique, proprietary procedure with the hope of acquiring the know-how to offer that procedure in your own practice, think carefully about the wisdom of doing so. Trade secret misappropriation and unfair competition claims, in addition to a breach of contract claim, may spoil your plan. If you are not involved in the management of your employer’s business, and if all that you’ve learned from your association with your employer are procedures and other practice-related information widely known and used in your area of specialty—or in the practice of medicine generally—then the argument that your employer has a protectable interest in confidential information is weakened considerably. 4. Investment in Training. It used to be that courts would view a restrictive covenant as a reasonable sacrifice that a younger physician makes in order to receive valuable training from an older, more experienced physician. (For an example of this line of thinking, see the Wisconsin Supreme Court’s decision in Oudenhoven v. Nishioka from back in 1971). But these days, how much explicit professional training does a newly-minted, board-certified specialist really get directly from his or her first employer? More recent decisions find a protectable interest in training only where the physician-employee is trained in surgical and other procedures that aren’t readily available outside the employer’s organization—basically, trade secrets. So, to sum up, here are the factors that tend to make it less likely that a court will view your employer as having a protectable interest that justifies the enforcement of a covenant not to compete against you:
In reference to the first bullet above, if you are a family physician, pediatrician, psychiatrist, oncologist, geriatrician, nephrologist, pulmonologist or other physician whose practice tends to result in close, sustained relationships with individual patients, don’t despair: Although your employer may have a protectable interest in patient relationships such as would support the enforcement of a non-compete against you, you may have an argument under the “public injury” prong of the rule of reason analysis that might limit the scope of that enforcement, or preempt it altogether. More on that in a later post. David M. Briglia is an employee-side attorney representing physicians and other healthcare professionals in negotiating their employment contracts with hospitals and group practices and litigating contract and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Rockville, Gaithersburg, Columbia, Baltimore and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County and Baltimore County. This blog is intended for informational purposes only and cannot be relied upon as legal advice. (The first in a series of posts discussing the factors that courts consider in deciding whether a restrictive covenant in a physician employment contract is enforceable. If this post interests you, be sure to check out part 2, part 3, part 4 and part 5 of the series.)
First off, let me admit that the title of this post is intentionally misleading. If you Google “can I break my non-compete,” you’ll get millions of results. Maybe it was that very query that brought you here in the first place. But, really, it’s the wrong question to ask. The right question is, “Is my non-compete agreement legally enforceable?” If your non-compete is enforceable, then the simple answer to the question, “Can I break my non-compete,” is “no.” You can’t break an enforceable non-compete without risking money damages and an injunction against you from practicing medicine in violation of the covenant. Not only that, but your new employer probably won’t be very happy with you when your former employer sues it for interfering in your non-compete obligations—which can happen if you take a new job in violation of a restrictive covenant). And, of course, there are the legal fees and expenses involved in defending against a breach of non-compete claim—usually up to five figures at the TRO/preliminary injunction hearing stage, and easily six figures through trial. Needless to say, by honoring an enforceable non-compete, you will be doing yourself an enormous favor. It’s no secret that physician employment—and employment mobility—have increased dramatically in the last 25 years. Prior to 1990, fewer than two percent of physicians changed jobs during their careers. But today, doctors are more likely to be salaried employees than to own their own practices, and about 70% of physicians across all specialties will change jobs within the first two years of their careers. Doctors change jobs for the same reasons other professionals do: the prospect of greater compensation, better working conditions, opportunities to enhance professional skills, a more flexible schedule to accommodate family responsibilities—the list goes on. In a country where doctors depend on employment mobility to improve their livelihoods and quality of life, an oppressive non-compete in a single employment agreement can do lasting damage. When is a non-compete in a physician employment contract enforceable? Well, if you live in Colorado, Massachusetts, Delaware or North Dakota, the answer is never. These states bar enforcement of physician non-competes as a matter of statute. If you live in California, your state bars enforcement of employee non-competes generally. If you practice in any other state, however, the answer is murkier. The majority of states in this country apply a “rule of reason” test, under which a covenant not to compete is reasonable, and therefore enforceable, if: 1) it is no more restrictive than necessary to protect legitimate interest of the employer (“legitimate” meaning not just for the purpose of stifling competition); 2) it doesn’t unduly burden the physician; and 3) it doesn’t injure the public. In separate posts below, I discuss arguments that physicians have used under this “rule of reason” approach to prevail against non-competes. Reading through these posts will likely give you an appreciation of how difficult it can be to predict where a court will come out when it applies a multi-factor test like this to the facts and circumstances of a particular case. There is little consistency to be found among states that follow the rule of reason test. Sometimes, it is difficult to find consistency in its application within a single state. You should also know that employers win preliminary injunctions in contested actions to enforce non-competes about 60% of the time. (This rate of success may be attributable to the fact that, although employers often impose non-competes on their employees indiscriminately, they usually only exert the money and effort needed to obtain a preliminary injunction in cases where they’ve been advised by their counsel that the odds of obtaining one are good). Whether a trial court judge will grant a preliminary injunction often turns on her general disposition toward non-competes—does she favor an employee’s freedom of mobility or an employer’s “freedom of contract”? Bottom line: this is an area of the law that is fraught with peril for physician employees. You need to consult with a lawyer in the state whose law governs your employment agreement before you take any action that might violate a non-compete. Of course, the very best approach is to consult a lawyer at the contract negotiation stage, before you ever agree to a covenant not to compete that is badly drawn and oppressive in the first place. David M. Briglia is an employee-side attorney representing physicians and other healthcare professionals in negotiating their employment contracts with hospitals and group practices and litigating contract and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Rockville, Gaithersburg, Columbia, Baltimore and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County and Baltimore County. This blog is intended for informational purposes only and cannot be relied upon as legal advice. |
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