The Enforceability of Non-Competes in Physician Employment Agreements. Part 3: When Is A Restrictive Covenant Overbroad?

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.