Restrictive covenants in contracts with physicians are generally governed by state common or statutory law. Except for those states where restrictive covenants are either legislatively or judicially prohibited, the states' differing treatment of physician restrictive covenants generally revolves around the tension between a medical practice's right to protect its patient relationships, goodwill and investment in training and mentoring and a patient's right to select a physician of his or her choice and the physician's right to select a course of treatment and the location of this treatment (such as a particular hospital or medical facility) in the best interest of his or her patients.
Those states that prohibit physician practice restrictions (the minority view), such as Tennessee, Colorado, Delaware, and Massachusetts, generally find persuasive the American Medical Association Council on Ethical and Judicial Affairs, Op. E-9.02 (1998), which provides:
"Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services. The Council of Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement. Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients' choice of physician."
See, e.g., Murfreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674, 679-80 (Tenn. 2005); see also Valley Med. Specialists v. Farber, 982 P.2d 1277 (Ariz. 1999) (stating physician/patient relationship is "special and entitled to unique protection"); Iredell Digestive Disease Clinic v. Petrozza, 373 S.E.2d 449, 455 (N.C. App. Ct. 1988) (stating with respect to the physician/patient relationship, the court was "extremely hesitant to deny the patientconsumer any choice whatsoever"); cf. Colo.Rev.Stat. Ann. § 8–2–113(3) (banning restrictive covenants with physicians); Del.Code Ann. tit. 6, § 2707 (same); Mass. Gen. Laws Ann. ch. 112, § 12X (same).
On the other side of the spectrum (the majority view) are states such as Arkansas, Illinois, Kansas, New Jersey amd New York, where their courts have rejected a strict application of Op. E-9.02, concluding that Op. E-9.02 does not prohibit noncompetition agreements entirely but merely discourages such restrictions and requires a careful balancing of public and private interests. See, e.g., Mohanty v. St. John Heart Clinic, S.C., 866 N.E.2d 85 (Ill. 2006); Idbeis v. Wichita Surgical Specialists, P.A., 112 P.3d 81, 88 (Kan. 2005); Community Hosp. Group v. More, 183 N.J. 36, 56, 869 A.2d 884 (2005) (AMA standards do not make restrictive covenants per se unethical but adopt a reasonableness standard similar to that applied by courts); see also Loeser, The Legal, Ethical, and Practical Implications of Noncompetition Clauses: What Physicians Should Know Before They Sign, 31 J.L. Med. & Ethics 283, 287 (2003); Berg, Judicial Enforcement of Covenants not to Compete Between Physicians: Protecting Doctors' Interests at Patients' Expense, 45 Rutgers L. Rev. 1 (1992).
A middle ground can be seen in Ohio, where its courts have explained:
"The AMA has stated that these agreements should be discouraged. It is vital that the health and expectations of patients, who are rarely aware of private agreements among physicians, be adequately protected. It is also important that competition among physicians be encouraged in these times of increasing health care costs.
Hence, in analyzing such covenants, a court must first be mindful of the rule of strict construction. These covenants should be strictly construed in favor of professional mobility and access to medical care and facilities. An adjunct to this principle of strict construction is that a court may modify the covenant between the parties under Raimonde to render it reasonable."
Ohio Urology, Inc. v. Poll,
594 N.E.2d 1027 (Ohio App. Ct. 1991).
Many states' courts treat this tension between a patient's and an employer's rights as a balancing factor in considering whether to issue an injunction, and have generally approached the issue much in the same way a Pennsylvania court did in 2009:
"Where a covenant not to compete 'seeks to limit the professional practice of a physician,' courts must evaluate the covenant's effect, if any, on the public interest. In the context of noncompete agreements amongst physicians, our Supreme Court has defined the public interest as a function of the availability of appropriate medical service to the community should an injunction be imposed."
Thus, if a community has a dearth of physicians, a court will be less likely to issue an injunction preventing a physician from serving patients in the community. However, the fact that a court might not enjoin the physician from practicing in an area does not mean that same court will not allow an action for damages to proceed against the physician for breach of the restrictive covenant. See, e.g., Community Hosp. Group v. More, 869 A.2d 884 (N.J. 2005).
A state's law and the opinions of its courts where the employer and physician do business should be consulted to determine the treatment of physician restrictive covenant enforcement.
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