Non-Compete Agreements - Rounding Up Medical Non-Competition Agreements

Medical non-compete agreements continue to make news. For earlier articles, click on the link below next to Label.

From the North Carolina Appellate Blog comes COA Invalidates A Non-Compete And Non-Solicitation Agreement, While Limiting Trade-Secrets Damages:

"Plaintiff (MSN) is a medical staffing company (e.g., providing per diem nurses to hospitals and healthcare providers). The employee was hired to be manager of the MSN's Raleigh branch, with accounts including WakeMed. Five years later, he resigned to join a Raleigh competitor, and WakeMed went with him.

Although he had signed a noncompete with MSN, he contended it was unenforceable. The noncompete defined MSN (and thus the scope of his noncompetition duty) to include not only MSN but also 'any parent, division, subsidiary, affiliate, predecessor, successor, or assignee' of MSN. 'As drafted,' the COA therefore observed, 'the covenant not to compete would prevent Ridgway from working in any business within a 60-mile radius of Raleigh that competes with MSN's parent, or any of its divisions, subsidiaries, affiliates, predecessors, or assignees, even if Ridgway's employment duties for MSN had nothing to do with that business.' The COA indicated that this ran afoul of the rule that a company has no legitimate interest in preventing an employee from competing with affiliated companies. The COA also held that it ran afoul of the rule that a noncompete is unenforceable if it prohibits the employee from work that is distinct from the duties he actually performed as an employee."

***

Yesterday the NC Court of Appeals (COA) invalidated a noncompete and nonsolicitaiton agreement as facially overbroad. The case is Medical Staffing Network, Inc. v. Ridgway. The decision required the COA to vacate a seven-figure judgment that the former employer obtained against the former employee and his new employer. The Court also gave direction (and limiting principles) for damages in trade secrets cases

From this description, I think Indiana courts would have no problem invalidating the non-compete agreement. Employers should also be looking a the trade secrets side of the equation.

Understand this article from 1996_11 | LEGAL FORUM as applying to more than the medical field. A Too-Tough Noncompete Clause Could Defeat Its Own Purpose:

"The noncompete clause should prevent the physician from providing services in the prohibited geographical area. However, it is not wise to bar the physician from drawing patients from that area. If a patient is willing to travel to an office outside the proscribed area, that should be sufficient.

In addition, a group needs to be reasonable in the scope of services it chooses to specify in a noncompete clause. It is dangerous, for example, to prohibit a cardiologist from practicing primary care medicine within the restricted area. After all, the special leverage that the medical group offered to that cardiologist was primarily tied to the physician's specialty. A court may find it unfair to prevent that physician from staying in the area and practicing outside the field of cardiology, assuming that noncardiology procedures were not included in his or her original practice."

Finally, the penalties imposed for violation of the covenant should also be reasonable. Often, an injunction is the only way to prevent the medical group from being irreparably harmed by unfair competition. Sometimes, though, it is sufficient to give the de- parted physician an opportunity to buy out of the prohibition by paying what is known as liquidated damages. This is essentially a mutually agreed payment, derived by some sort of reasonable formula, to reflect an agreed approximation of the cost of the harm to the medical practice from the competition.

***
I recently have begun to see an interesting variation on physician noncompete provisions in employment agreements. Instead of the standard noncompete provisions, the contract lists specific physicians from whom a departing employee may not accept referrals. Often, this list is so extensive as to virtually prevent the physician from remaining in the area. All of the same cautions and advice I discuss above for standard noncompete provisions apply to such "end-run" prohibitions.

The successful non-compete case begins with the agreement itself. The truly successful case has a well drafted non-competition case that prevents litigation. The article Doctors' Rights Protected by Non-Compete Ruling has another case demonstrating this point:

"While medical clinics long have protected patient bases with physician non-compete agreements, a recent Arizona Supreme Court ruling favors doctors' rights by limiting how broadly such agreements may be written.

Non-compete agreements prohibit doctors who leave the practice from treating patients within a certain distance from the clinic for a specific amount of time.

But the state's high court determined one agreement was too broad because it prohibited a pulmonologist from practicing any form of medicine within five miles of a clinic and for three years after his departure. The court stated that because of the physician/patient relationship and a patient's right to see one's chosen doctor, non-compete agreements must be narrowly worded. For this reason, the court ruled the wording in an employment contract between Dr. Steven Farber and Valley Medical Specialists was unreasonable."

Between ethical issues and poor writing, these medical non-compete agreements present serious issues for lawyers, doctors, patients and the courts. I am inclining to the position that here is a place for garden leave clauses supplanting the traditional non-compete agreements.

Remember, if you want more information about retaining me for a case, please give me a call at 765-641-7906.