Physicians often ask my opinion regarding restrictive covenant provisions in their employment agreements. Sometimes, I review such restrictions from the perspective of a physician looking to leave a medical practice. Other times, it is the medical practice looking to protect or enforce its rights.
In most states, some form of competitive restriction can be found in physician (and other provider) employment agreements and will be enforceable if properly drafted. Competitive restrictions are typically intended to protect an employer from “unfair” competition once a provider’s employment has terminated; however, noncompete provisions can sometimes go beyond what might be considered reasonable in a particular state.
It should never be assumed that a noncompete provision is “enforceable” or “reasonable.” No lawyer can, or should, provide such a guarantee. The specialty of the medical practice, geographic location, and the facts and circumstances related to an employee’s termination can all play an important role in assessing enforceability of a restrictive covenant. Often, the length of time a physician worked for a practice, and the reason for a physician’s termination, can be important factors as well.
One of the most important concepts a court will focus on when reviewing a noncompete clause (and therefore deciding whether to enforce such provision against a provider) is whether the employer has a “protectable interest” in enforcing the noncompete.
For example, if a physician practice has a patient base composed 75 percent of patients who reside within a 5-mile radius, the court might question if they have a protectable interest in a 25-mile noncompete radius. If a medical practice solely performs specialty services, such as urology or radiology, the court might question whether it has a protectable interest in preventing a departing physician from practicing all medicine rather than just the specific medical services that would compete with the employer. This kind of analysis is key to a valid and enforceable noncompete.
Another example of a noncompete where an employer may not have a protectable interest in enforcing a covenant against a physician is when an employer loses its contract to provide services at the hospitals its noncompete was written to protect. A recent decision by the Appeals Court of Indiana (“Court”) in Great Lakes Anesthesia, P.C. v. O’Bryan, et al., 27A02-1708-CT-1956 (April 2018) affirmed a lower court ruling that an employer could not enforce its noncompete under such circumstances.
In the particular case reviewed by the Court, two married certified registered nurse anesthetists (CRNAs) were hired by an anesthesia group (the “Group”) to provide nurse-anesthesist services at Marion General Hospital in Marion, Indiana. The CRNA signed an employment agreement with a provision that if the CRNAs terminated their employment (other than for cause) they could not render anesthesia services for 24 months at the specific facilities where they had worked for the Group or within a 25-mile radius of those facilities. This would prevent the performance of services at Marion upon termination.