Healthcare Law, Litigation & Public Policy   Medical Licensure & Discipline ♦ Employment Board of Registration

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  • Taking Chances2:24

Employment contracts might contain a clause that restricts a physician's right to practice in a similar field of medicine after leaving an employer for a designated period of time within a certain geographic area. But recently, Massachusetts' highest court struck down the validity of a noncompetition clause involving a gynecologist.

In Falmouth Ob-Gyn Associates, Inc. v. Abisla, the physician entered into an employment contract forbidding him to practice within 25 miles of his employer within two years of leaving employment with the plaintiff. If he violated this agreement, the contract also required the physician to pay his former employer $250,000. The physician did open his own practice within two years of leaving his employer and also violated the 25-mile restriction. So the former employer sued the physician.

A Massachusetts statute prohibits any restriction on the right of a physician to practice medicine in a particular geographic area. Falmouth Ob-Gyn Associates, Inc., however, argued to the Court that the contractual clause was not covered by that statute. Instead, the employer argued, it was a legal “compensation for competition” clause, which requires a physician to compensate his partners or employer when he leaves them.

The Court disagreed with the employer, stating that the statute banned any restriction that had an "inhibitory effect" on a physician's practice in a specific geographic area. The Court also stated that the clause requiring the physician to pay his former employer $250,000 imposed an unlawful penalty on a physician.  

Public policy considerations also played a role in the Court's decision. It recognized that non-complete clauses are beneficial under some circumstances. But the Court balanced this benefit against the public interest favoring the right of patients to consult a physician of their choice. The Massachusetts Supreme Judicial Court therefore held that the contract clause violated public policy and was unenforceable.

Other states approach this issue differently. Two states, Colorado and Delaware, have specific statutes banning non-compete covenants in physician employment contracts or partnership agreements. However, these statutes also explicitly allow the enforcement of agreements that require the payment of damages related to competition upon the termination of a physician's employment contract or partnership agreement.

Some states that do not have statutes specifically addressing this point will enforce compensation for competition clauses if they are reasonable. Iowa is an example. An Iowa case, Dental East, P.C. v. Westercamp, considered a non-competition clause between two dentists who combined practices. The clause provided that if either left the combined practice, they could not do business within a 20-mile radius of the former practice. The agreement also stated that for two years they could not contact any patients of the former practice and if they did so, they would be required to pay the other dentist 40% of any income derived from such patients for one year.

One of the dentists subsequently left the practice and opened a private office one mile from the former practice. The other dentist sued. An Iowa appeals court upheld this non-competition clause, stating that it was not unreasonably restrictive on the dentist's right to practice. The court found that the 20-mile radius and 40% compensation provisions were justified, as they safeguarded the former partnership's business interest in controlling its patients' records.

Non-compete clauses in physician employment contracts are common. But the rules vary, depending on the state in which you practice. Before entering into an employment or partnership agreement, physicians should not hesitate to consult an attorney to fully understand the ramifications of the agreement.

Otherwise, they might find themselves involved in expensive and time-consuming litigation that could limit their ability to practice once the employment or partnership ends.

Non-Compete Agreements

by Attorney Frank E. Reardon

February 1995