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As you may be aware, there are some jurisdictions, like California, that automatically invalidate, on public policy grounds, non-compete agreements. Most states across the country allow them, at least in limited fashion, however.
There are other states that despite allowing non-compete agreements in general, have either disallowed, or put strict limits on, them when it comes to doctors.
The Arguments For - And Against - Non-Competes When it Comes to Doctors
For stylistic reasons, I will address these arguments in reverse order.
Why Some Jurisdictions Have Disallowed, or Put Strict Limits on, Non-Competes for Doctors
One of the primary arguments raised against holding doctors (as opposed to other professionals) to non-competes boils down to two (2) words:
Patient Choice.
These jurisdictions, such as Delaware, Alabama, Massachussetts and California, have either invalidated, or severely limited, these types of restrictions on doctors because it would, in the view of these states' legislatures, be "against the public interest" by infringing on the public's desire, or "right" to go to the doctor of their choice.
Another argument that is often raised in opposition to these non-compete agreements is that in some smaller areas, that may lead to a dangerous shortage of specialists in that particular field of medicine. See, e.g., Tenn. Code Ann. § 63-1-148, which although permitting physician non-competes, excludes physicians who specialize in emergency medicine.
Why Some Jurisdictions, Like New York, Allow Doctors to Be Bound to a Non-Compete
On the other hand, the argument for allowing non-compete provisions to be upheld against doctors is fairly straightforward; it follows basic contract principles (i.e., you are bound to abide by the terms of the agreements you sign), and that patient choice standing alone is insufficient grounds to counteract the employer's legitimate business interest in protecting its good will.
To that end, a number of courts have argued that a medical practice has a legitimate business interest worthy of judicial protection, particularly where it provided the doctor with specialized medical training. See, e.g., Community Hosp. Grp., Inc. v. Moore, 869 A.2d 884 (N.J. 2005); Pierson v. Medical Health Ctrs., PA, 869 A.2d 901 (N.J. 2005); Weber v. Tillman, 913 P.2d 84, 92 (Kan. 1996) (Employer’s investment in setting up its practice and in recruiting and training defendant employee deemed a protectable interest).
In St. Clair Med., PC v. Borgiel, 270 Mich. App. 260, 266 (2006), the court took it a bit further, stating:
“In a medical setting, a restrictive covenant can protect against unfair competition by preventing the loss of patients to departing physicians, protecting an employer’s investment in specialized training of a physician, or protecting an employer’s confidential business information or patient lists.”).
Moreover, some courts have taken the position that allowing non-competes against doctors can even have a positive impact on patient care, stating:
“[R]estrictive covenants protect the business interests of established physicians and, in this way, encourage them to take on younger, inexperienced doctors. Accordingly, restrictive covenants can have a positive impact on patient care.”
Mohanty v. St. John Heart Clinic, 866 N.E. 2d 85, 95 (Ill. 2006).
Some of the states that have, generally speaking, allowed non-competes against doctors to stand include the following:
An Important Caveat
Of course, that does not mean that a doctor's non-compete clause will automatically be upheld or deemed enforceable; rather, this simply means that under New York law (and these other states), it won't be declared invalid from the get-go.
To the contrary, New York's courts are still obligated to subject the non-compete to the standard analysis afforded any other non-compete agreement, assessing the following:
- Are the restrictions being imposed reasonable in geographic scope and duration?
- Does the agreement purport to protect the employer's legitimate business interest?
- Is the non-compete clause unduly burdensome?
- Does the provision offend the public interest?
Moreover - and critically - even the states that permit non-compete agreements against physicians have subjected these clauses to more rigorous examination than in the garden-variety employment context. The thought process behind this was well-summarized by the New Jersey Supreme Court in
"Significant here is the demand for the services rendered by the employee and the likelihood that those services could be provided by other physicians already practicing in the area. If enforcement of the covenant would result in a shortage of physicians within the area in question, then the court must determine whether this shortage would be alleviated by new physicians establishing practices in the area. It should examine also the degree to which enforcement of the covenant would foreclose resort to the services of the ‘departing’ physician by those of his patients who might otherwise desire to seek him out at his new location. If the geographical dimensions of the covenant make it impossible, as a practical matter, for existing patients to continue treatment, then the trial court should consider the advisability of restricting the covenant’s geographical scope in light of the number of patients who would be so restricted."
Community Hosp. Grp., Inc. v. Moore, supra.
The Takeaway
While there is a significant disagreement between various states as to the per se enforceability (or unenforceability) of a non-compete agreement against doctors, there is no question that the courts will scrutinize these provisions very closely
