It’s easy to make a short list of the important clauses in a physician employment contract. These are clauses involving economic rights and basic duties. Salary, incentive bonus, call responsibilities, signing bonus, relocation allowance, expense reimbursement, malpractice coverage, buy-in option – the list goes on. But the most important clause in an employment contract, hands down, is one you will usually find in the very back of the agreement, buried among the clauses that attorneys and clients alike usually refer to as “boilerplate” and often (to their detriment) treat as insignificant “legalese.”
What clause is that? It’s the integration clause. Here's how it typically reads:
This Agreement constitutes the entire agreement between Employer and Physician with respect to matters relating to Physician's employment, and it supersedes all previous oral or written communications, representations or agreements between the parties.
It’s usually that simple. Its effect, however, can be profound. Sometimes called the “entire agreement” or "merger" clause, its purpose is to preclude either party – employer and employee alike – from relying on any promise, understanding or representation which the other party may have made in the course of negotiating the contract, unless that promise, understanding or representation is, in fact, included in the contract.
So what about the oral assurance that the hospital’s CMO made to you that physicians in your specialty who are employed by the hospital are only expected to cover call every fifth weekend? What about the practice group manager’s statement that scheduling vacations among the groups employed physicians is never a problem? What about that promise which was made to you in an email when you were first considering the position that you would be considered for partnership after two years of employment? What about various representations and promises that were made in the letter of intent? Were all of them faithfully incorporated into the definitive contract? If not, then these things will be without any legal effect, thanks to the integration clause.
The purpose of an integration clause is to take advantage of a legal doctrine of contract interpretation commonly referred to as the “four corners” rule. Under the “four corners” rule, a court will determine the meaning of a written contract solely by reference to the text of the contract itself, without relying on other evidence. So-called “extrinsic evidence” of what the contract is supposed to mean – or what the contract is supposed to have said – will not be considered by the court at all. This would include documents such as letters of intent, term sheets, emails and text messages exchanged between the employer and employee before the contract was signed, as well as oral statements that the parties may have made to each other during that time, as recounted by witnesses.
Thus, if the employer fails to live up to any promise that it made before the contract was signed that is outside the “four corners” of the contract, and that contract contains integration clause, then that promise is of no further legal effect. You will not be able to terminate the agreement for breach if that promise is subsequently not honored (which it may well not be). If you were relying on any extra-contractual representations about (for example) the employer’s financial condition or patient volume, then you will not be able to terminate the agreement for breach if these representations turn out not to have been true when they were made. Plus, the presence of an integration clause may frustrate – or at the very least complicate – your ability to bring a fraudulent inducement claim or defense against your employer for that reason. (But not, however, in Maryland, where the presence of an integration clause in a contract cannot be used to defeat a fraudulent inducement claim relating to that contract. See Greenfield v. Heckenbach, 797 A.2d 63, 144 Md. App. 108 (2002)).
The point here is not to persuade you to try to negotiate the integration clause out of the contract. You’ll never be able to do that. The point instead is to encourage you to review the contract carefully before you sign it, and make sure that all promises, understandings and factual premises that you are relying on in entering into the contract – and certainly all that are contained in a letter of intent or term sheet which preceded the contract – are clearly reflected in writing in the contract. And if you are relying on prospective employer’s oral assurances of good faith and fair dealing in the future, and statements to the effect of, “you’re just going to have to trust us about this,” think again: A court will only enforce the literal provisions of a fully integrated, written contract. You will only get one bite at the apple.
The Law Office of David M. Briglia represents physicians, physician assistants, nurse practitioners and other professionals in the healthcare industry in the negotiation of employment contracts, separation agreements, practice buy-ins and partnership and shareholder agreements, and in litigation involving employment and contract disputes in Maryland and Washington D.C. The article above is for informational purposes only, and cannot be relied upon as legal advice.
Let’s say that you’re a registered nurse, employed at a hospice in Montgomery County, Maryland. Pain management being an important part of hospice care, your employer often dispenses high-power, potentially dangerous narcotics to its patients. The problem is, it has recently started providing narcotics to patients without a physician’s order.
Eventually, you come to find out that narcotics are sometimes even being dispensed to individuals who aren’t patients of the hospice at all. You learn that "starter packs" of medications, containing adult doses of narcotics, have been ordered for every patient—including your employer’s pediatric patients, some of whom live in homes with many children and with little supervision in the house.
Naturally, you’re alarmed. You recognize the danger to public safety posed by your employer’s reckless dispensation practices. You believe that, as a registered nurse, you have a legal duty to say something. You send an email to your supervisor describing these lapses. Shortly thereafter, you’re fired.
Do you have a claim for wrongful termination?
The story above isn’t hypothetical. It’s a very short summary of the allegations made by the plaintiff in Lark v. Montgomery Hospice, Inc., 414 Md. 215 (2010). In Lark, the Court of Appeals reversed the trial court, which had dismissed Susan Lark’s claim of wrongful termination under the Maryland Health Care Worker Whistleblower Protection Act, and reinstated her claim against her former employer.
The Health Care Worker Whistleblower Protection Act (the “Act”) is codified under Sections 1-501 through 1-505 of the Health Occupations Article of the Maryland Code. Any employed professional who is licensed by a professional board under the Health Occupations Article is entitled to protection under the Act. This includes, but is not limited to:
· Physician Assistants
· Physical therapists
· Psychologists and
Under the Act, an employer may not take or refuse to take any personnel action as reprisal against an employee because the employee:
(1) Discloses or threatens to disclose to a supervisor or board an activity, policy, or practice of the employer which is in violation of a law, rule, or regulation;
(2) Provides information to or testifies before any public body conducting an investigation, hearing, or inquiry into any violation of a law, rule, or regulation by the employer; or
(3) Objects to or refuses to participate in any activity, policy, or practice which is in violation of a law, rule, or regulation.
Unfortunately, the scope of the Act’s protection is more limited than one might wish. In order for an employee’s disclosure to an employer’s activity, policy or practice to be protectable, that activity, policy, or practice must pose a “substantial and specific danger to the public health or safety.” So if, for example, the violation disclosed by the employee relates to fraudulent Medicaid billing, the employee’s reporting activity with respect to that violation would not be protected under the Act.
Moreover, although Maryland enacted a Health Care False Claims Act in 2010, which outlaws false and fraudulent claims under any State health plan or program—and which contains an anti-retaliation provision for employees and others who disclose or oppose activities which they reasonably violate that law—professional employees who are covered under the Health Care Worker Whistleblower Protection Act cannot bring claims of retaliation under the Health Care False Claims Act. Thus, doctors, nurses and most other employed healthcare professionals (who are often in the best position to prevent and detect healthcare fraud) are not protected from retaliation for reporting suspected violations of the Health Care False Claims Act unless those suspected violations pose a danger to public health and safety, and are therefore covered under the Whistleblower Protection Act.
To claim protection under the Act, a healthcare employee must at least report his or her suspicions internally. He or she must either:
(1) report the activity, policy, or practice to a supervisor or administrator of the employer in writing and afford the employer a reasonable opportunity to correct the activity, policy, or practice; or
(2) If the employer has a corporate compliance plan specifying who to notify of an alleged violation of a rule, law, or regulation, follow the plan.
Thus, the protection provided by the Act does not extend to a former employee who made no internal report before his or her employment was terminated. In Lark, the Court of Appeals ruled that the Act does protect a former employee who was fired before he or she made an external report to a board, provided that the employee made a written report internally to a supervisor or administrator of the employer. A “supervisor” under the Act means any individual within an employer's organization who has the authority to direct and control the work performance of an employee, or who has managerial authority to take corrective action regarding the violation of a law, rule, or regulation of which the employee complains.
An employee bringing an action under the Act may recover lost wages, benefits, and other compensatory damages. An employer who has been terminated in violation of the Act is also entitled to reinstatement to the same or an equivalent position held before the violation, as well as the removal of any adverse personnel record entries based on or related to the violation and the reinstatement of full fringe benefits and seniority rights. If the employee prevails, a court may also assess reasonable attorney's fees and other litigation expenses against the employer.
Under the Act, an employer has an affirmative defense if the personnel action complained of was based on grounds other than the employee's exercise of any rights protected by the Act. What this means in a “mixed motive” case, where an employer terminates an employee not only for her reporting activity under the Act but also for legitimate, performance-related concerns, is not clear. The Court of Appeals hasn’t yet been presented with an opportunity to interpret the Act’s “other grounds” defense. However, in other cases involving termination in violation of public policy, the Court of Appeals has ruled that an employee need only persuade a jury that his or her protected activity played a “motivating part” in the employer’s decision to terminate her; the employee is not required to prove that, but for engaging in the protected activity, she would not have been discharged. Ruffin Hotel Corporation of Maryland, Inc. v. Gasper, 418 Md. 594, 686 (2011). One would hope that the Court of Appeals would adopt this less stringent standard for claims arising under the Act, as well.
This gap in protection may have been fixed this year. In February of 2015, Maryland enacted a more comprehensive False Claims Act that protects employees, contractors and grantees from retaliation for disclosing or opposing an activity, policy or practice which that person reasonably believes violates that law—which would include the making of false and fraudulent claims for payment to the State or any county. MD GEN PROVIS § 8-101 et seq. Importantly, healthcare professionals are not excluded from protection under this statute.
David M. Briglia is an attorney who represents physicians, physician assistants, nurses and other healthcare professionals who have been fired, harassed or demoted for reporting fraud, illegal activity, discrimination and other misconduct. 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, Chevy Chase, Rockville, Gaithersburg, Germantown, Columbia, Baltimore, Annapolis and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County, Calvert County and Baltimore County. You can reach the firm at 240-482-0581.This blog is intended for informational purposes only and cannot be relied upon as legal advice.
The short answer to the question posed in the title of this article is “it depends.”
There is no bar to enforcing a non-compete against a physician in Maryland. Covenants not to compete in physician employment contracts are subject to the same “rule of reason” test that Maryland courts (and the courts of most other states) apply to covenants not to compete in employment agreements in every other industry. While courts in at least other states have grappled with the serious public policy implications of non-competes in the medical profession, Maryland’s courts have said nothing about them. In fact, to count the number of reported decisions from Maryland courts that address covenants not to compete in physician employment contracts, you won’t even need one full hand.
In Maryland, as in most states, the rule is that a covenant not to compete in an employment contract, under which an employee agrees not to engage in a competing business against her employer upon leaving employment, will be enforced if (1) the restraint is no wider as to area, duration and prohibited activities than is reasonably necessary to protect the business of the employer, (2) the covenant does not impose undue hardship on the employee, and (3) the covenant does not harm the public interest. Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118, 123-124 (1967).
No statute in Maryland limits the enforcement of non-competes against physicians. And the Court of Appeals (the “Supreme Court” of Maryland) has made clear that it is not inclined to fashion a blanket rule against non-competes in any profession, including medicine. In the Court’s view, that’s the General Assembly’s job. See Holloway v. Faw, Casson & Co., 319 Md. 324 (1990).
In Maryland, claiming that a non-compete is overbroad isn’t always a perfect defense to its enforcement. Maryland courts are willing to “blue pencil” an overbroad non-compete—that is, strike out logically and grammatically severable words and sentences to make the non-compete enforceable. In at least one reported case, the Court of Special of Appeals (Maryland’s intermediate appellate court) has gone so far as to rewrite an overbroad non-compete so as to reduce its duration from five years to three, but on appeal the Court of Appeals declined to rule on the propriety of that approach, and hasn’t ruled on the matter since. See Holloway v. Faw, Casson & Co., 78 Md. App. 205, 239 (1989); Holloway v. Faw, Casson & Co., 319 Md. 324, 353 (Md. 1990). Courts in Maryland are also permitted to enter an injunction with a scope that is less than that of the non-compete, if the court believes that the non-compete may be overbroad in one or more respects. In these ways, Maryland courts, under the right circumstances, will partially enforce an overbroad non-compete.
A Legitimate Need for Protection?
Like all states that follow a “rule of reason” approach to enforcing covenants not to compete in employment agreements, Maryland will only enforce a covenant that is needed to protect a legitimate business interest of the employer. However, the range of business interests that count as “legitimate” in Maryland are quite narrow: Non-competes are enforced by Maryland courts only against those employees who provide unique services, or to prevent the future misuse of trade secrets, routes or lists of clients, or solicitation of customers. Becker v. Bailey, 268 Md. 93, 97 (1973).
The “unique services” justification has rarely ever been invoked in Maryland to uphold a non-compete. The only reported instance of the Court of Appeals having done so is in Milward v. Gerstung International Sport Education, Inc., 268 Md. 483 (1973). That case involved a summer camp administrator who had been hired by the complaining employer because of he had achieved local celebrity as a junior-league soccer coach, and the employer expected that celebrity to exert a draw on camp patrons. Subsequent decisions by Maryland state courts make clear that the “unique services” doctrine is limited in applicability to one-of-a-kind employees with similar celebrity appeal. Specialized education and training (like the kind possessed by physicians) are not qualifications that in and of themselves establish uniqueness; nor are employer-provided training or experience, or skills gained on the job. See Ecology Services, Inc. v. Clym Environmental Services, LLC, 952 A.2d 999, 1010 (2008); Labor Ready v. Abis, 767 A. 2d 936, 946 (2001). So, if you are a physician, it isn’t likely that the “unique services” doctrine will justify the enforcement of a non-compete against you—unless, perhaps, you are Dr. Oz.
It is also unlikely that the need to protect patient lists and other trade secret information will justify enforcing a post-employment non-compete against a practicing physician. Clinicians without high-level management responsibilities will rarely have access to information of their employer that is legitimately a trade secret. In any event, it would be unusual for a physician employment contract that contains a non-compete to not also include confidentiality and patient non-solicitation clauses. The latter should suffice to protect any legitimate interest that the employer has in confidential information. Maryland courts have demonstrated a preference for enforcing confidentiality and reasonable non-solicitation clauses rather than non-compete clauses when such clauses are present in the same employment contract.
Usually, the only legitimate interest that a healthcare employer will have in enforcing a non-compete against a healthcare professional will be for the protection of patient goodwill. The rule in Maryland is that if part of the compensated services of the employee consists of the creation of goodwill of customers, then a protectable interest justifying a non-compete may exist. Silver v. Goldberger, 231 Md. 1, 7, 188 A.2d 155 (1963). In determining the employer's need for the protection in a professional services business, the question is whether the personal contact between employee and client is so strong that the employee can control the business of the client as a personal asset, such that, upon leaving the employer, the employee might be able to take the client with her. See Holloway, 319 Md., 349-351 (citing 41 A.L.R.2d 15, 72, §14 (1955)).
In Maryland, a legitimate need for a non-compete is typically found in cases involving employees who regularly serve the same customers over time. In these cases, the period of time considered to be a reasonable duration for the non-compete is the period reasonably necessary to sever that attachment. How long that might be depends on the facts and circumstances of the particular case. For example, in Holloway (a case involving a certified public accountant) the Court of Appeals found a period of three years to be reasonable, but not the full five years stipulated in the employee’s non-compete.
Where the employer’s business is driven by the occasional, irregular needs of the customer, rather than by a relationship between the customer and any particular employee, Maryland courts have been reluctant to enforce non-competes against employees—at least where there is no evidence that the employee has attempted to solicit away the customers of her former employer. See Tawney v. Mutual System, 47 A.2d 372 (Md. 1946), Silver, 231 Md., Becker, 268 Md. For example, in Tawney, the Court ruled that a restrictive covenant that required the former manager of a small loan company "to refrain from engaging directly or indirectly in any business competitive with that of the employer in the Baltimore City trading area for a period of two years" was unenforceable as written. In these cases, an employee cannot be restricted from competing beyond the time it would take for a new employee to reasonably become acquainted with the employer’s existing customers. In Tawney, the court pegged this length of time as being only a few days.
What does all this talk about accountants and loan officers have to do with doctors? In medicine, there are physicians who come into regular contact with the same patients over a sustained period of time. Primary care providers are the most obvious example. The success of a primary care practice often depends on the existence of goodwill between a patient and a specific physician of the practice. Part of the compensated services of an employed primary care physician might fairly be said to include the creation of patient goodwill which might follow the physician upon her departure. For the employers of these physicians, a legitimate need for the protection of a post-employment non-compete would seem to exist. In these cases, the Court of Appeals’ decision in Holloway should bear on the outcome.
But there are also physicians whose contacts with patients are occasional and short-lived, and driven wholly by the irregular needs of the patient and not by any sustained relationship between physician and patient. Emergency room physicians are perhaps the best example, but many surgeons and other kinds of specialists would qualify as well. In these cases, The Court of Appeals’ decisions in Tawney, Silver and Becker should govern the outcome, and should render a non-compete largely unenforceable except to prevent the actual solicitation of the employer’s patients by a former physician-employee.
Less than a Handful of Cases
As mentioned above, reported cases in Maryland involving physician non-competes are few and far between.
Warfield v. Booth
The first such case is Warfield v. Booth, a decision from the Court of Appeals from back in 1870. 33 Md. 63 (1870). Warfield is a non-compete case, but not one involving a restrictive covenant ancillary to an employment agreement. Instead, Warfield concerns the sale of personal goodwill as part of the sale of a private medical practice. In Warfield, the defendant physician sold the goodwill of his practice in Lisbon, Maryland to the plaintiff, also a physician. In exchange for the sale of the defendant’s goodwill, the sales contract provided that the defendant would not practice medicine in Lisbon. But the defendant did resume practicing, and so the buyer refused to continue paying the purchase price on installment, and brought a breach of contract action against the defendant for violating the non-compete.
Part of the defendant’s argument was that the covenant violated public policy. The Court of Appeals disagreed, finding that the non-compete did not violate public policy because it was limited "in its extent and operation" to the defendant's practice in Lisbon. (The Court of Appeals in Holloway would rely in part on its decision in Warfield in determining that non-competes in the accounting profession should not be treated as unenforceable per se as against public policy, reasoning—in essence—that if, in the past, the Court had been willing to enforce a non-compete against a doctor, why shouldn’t it do so against a CPA?)
Lofton v. TLC Laser Eye Centers, Inc.
The second reported case in Maryland involving a covenant not to compete in the healthcare industry came over one hundred years after Warfield: Lofton v. TLC Laser Eye Centers, Inc., a decision out of the United States District Court for the District of Maryland from February, 2001. 2001 U.S. Dist. LEXIS 1476.
The plaintiff in Lofton was an ophthalmic technician with training in refractive eye surgery. The defendant, TLC, was—and still is—a nationwide network of ambulatory laser eye surgery centers. Lofton was hired to work in TLC’s center in Rockville, Maryland. Lofton’s employment agreement with TLC included a non-compete that prohibited Lofton, for one year after the end of his employment, from working for any medical clinic, outpatient, ambulatory or diagnostic facility equipped with an excimer laser or other laser intended to be used for laser vision correction procedures, within a fifty mile radius of any TLC site.
Lofton worked for TLC for less than a year. He was terminated allegedly because he failed to attend all of the required seminars during a conference. Shortly thereafter, he took up employment with Lasik Plus, Inc., a direct competitor of TLC, in its office in Gaithersburg, Maryland. Lofton promptly lost his position with Lasik after it received a letter from TLC’s counsel complaining about Lofton’s employment with Lasik. Lofton then sued TLC alleging a number of claims, including fraudulent inducement, breach of contract, racial discrimination and tortious interference with contract and prospective economic advantage.
Much can said about the overbreadth of TLC’s non-compete with Lofton. That it banned him not only from performing refractive eye surgery, but from working in any capacity for an employer in the laser eye surgery business was almost surely overbroad as to restricted activities. That it covered a geographic radius of 50 miles of any TLC site, including ones at which Lofton never worked, was almost surely overbroad in terms of geographic scope. One can also question whether TLC had a legitimate need for the protection of a non-compete in the first place: Lasik surgery is usually a once-and-done service that doesn’t result in the formation of long-term relationships between patient and physician, and Lofton’s employment agreement also contained a confidentiality clause that should have adequately protected TLC’s interest in whatever of its trade secrets Lofton may have been exposed to. Perhaps for these reasons, TLC stipulated early in the litigation that it would not seek to enforce the non-compete against Lofton.
Although Lofton sheds no light on how a Maryland court would go about analyzing a physician non-compete, it does teach a number of cautionary lessons about the viability (or lack thereof) of certain claims and defenses that might be asserted in a non-compete enforcement action.
Lofton claimed that TLC, through its representative, fraudulently induced him to sign the non-compete by stating that it was not enforceable, and that TLC would not "go after" employees to enforce it. The court dismissed Lofton’s fraudulent inducement claim, ruling that these statements were not sufficiently “concrete” to constitute material misrepresentations of fact necessary to sustain a claim for fraud. The court regarded the statement of TLC’s representative that the non-compete was unenforceable as a statement of opinion, and noted the Maryland courts have consistently held a party's opinion is not a material misrepresentation of fact.
The court regarded the statement of TLC’s representative that TLC would not use the non-compete to "go after" Lofton as essentially promissory in nature— also not the sort of statement that Maryland law regards as a material misrepresentation of fact. The court further found that the “imprecise and speculative nature” of the “won’t go after” statement was such that Lofton could not have reasonably relied on it at the time he signed the agreement, thus undercutting yet another predicate element of Lofton’s fraud claim.
Lesson learned: Never trust your prospective employer’s statement that the non-compete contained in its proposed employment contract is unenforceable, or won’t be enforced in the future against you.
Lofton also claimed that TLC breached its contract by failing to provide him with sufficient consideration for signing the non-compete. That claim was perfunctorily dismissed by the court, which noted that, under Maryland law, it is well established that where a restrictive covenant is bargained for in exchange for employment, the employment will be sufficient consideration for the restrictive covenant.
Lofton further claimed that his termination violated the implied covenant of good faith and fair dealing inherent in his employment contract with TLC. But the court dismissed this claim, too, noting that the Maryland Court of Appeals does not recognize a general requirement of good faith and fair dealing with respect to the termination of an at-will employment relationship.
Because Lofton’s subsequent employment with Lasik Plus was terminated as the result of a cease and desist letter sent by TLC’s counsel, Lofton claimed that TLC had tortuously interfered with his employment contract with Lasik Plus. But the court ruled that there could be no malicious or wrongful interference, particularly with an at-will contract, where TLC did nothing more than act to enforce a colorable contract right, even where that contract right might ultimately have been adjudged unenforceable.
Lofton further claimed that the cease and desist letter defamed him by alleging that he stole confidential documents from TLC upon his departure. This claim also failed. The court ruled that, since the letter came from an attorney and was related to anticipated litigation, it was entitled to an absolute privilege from suit, even if it was in fact defamatory.
Lesson learned: In Maryland, you may be out of luck if your prior employer sabotages your subsequent employment by sending a “lawyer letter” to your current employer alleging breach of non-compete and trade secrets theft. This may be the case even if your non-compete with the prior employer is ultimately shown to be unenforceable under Maryland law (so long as your prior employer’s claim was at least “colorable”), and even if other factual allegations in the letter are known to be untrue by the lawyer.
 Every other industry that is except for the legal profession. Non-competes in my industry are prohibited under the Rules of Professional Conduct except in cases involving the buy-out of a lawyer’s practice upon retirement.
 Courts in many states are more apt to enforce a covenant not to compete that is ancillary to the sale of a business than they are to enforce a covenant that is ancillary to an employment agreement. They reason that the terms and conditions of a business sale are more likely to be bargained for at arms’ length, by parties of equivalent bargaining power, than are the terms and conditions of an employment agreement. Maryland courts, however, do not typically make such a distinction.
David M. Briglia is an attorney who represents physicians, physician assistants and other healthcare professionals in negotiating and litigating breach of contract, non-compete, trade secret misappropriation, unfair competition 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, Chevy Chase, Rockville, Gaithersburg, Germantown, Columbia, Baltimore, Annapolis and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County, Calvert County and Baltimore County. You can reach the firm at 240-482-0581.This blog is intended for informational purposes only and cannot be relied upon as legal advice.