THE ENFORCEABILITY OF NON-COMPETES IN PHYSICIAN EMPLOYMENT AGREEMENTS: PART 4: UNDUE HARDSHIP

(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.