Non-Competition Agreements in Healthcare Practices

Article by Edward O. Comitz

Non-competition agreements typically bar physicians each from encouraging patients to follow them to a new practice and from practicing for a specific period of time inside a particular distance of the existing employer’s location. Most practices now use non-competition agreements and other restrictive covenants to shield their patient bases and referral sources from competition when a physician leaves the practice, but these agreements also have drawbacks. There is significantly debate in the healthcare and legal communities over the extent to which these non-compete clauses are enforceable–if at all. The truth is that non-competition agreements are often enforceable and occasionally not, based on their certain restrictions and circumstances.Enforceability Enforcing non-compete agreements can be problematic, since courts construe the agreements narrowly and establish their enforceability on a case-by-case basis. Arizona courts typically disfavor non-competition agreements, specifically amongst doctors. Thus, courts read the restrictions in a non-compete as narrowly as feasible, with any ambiguities interpreted in favor of the employee rather than the employer.1 To be enforceable, a non-compete agreement should safeguard “some legitimate interest beyond the employer’s desire to safeguard itself from competition.”2 According to the Arizona Supreme Court, the legitimate purpose of non-competes is to prevent a leaving employee from making use of information or relationships that belong to the employer or were acquired simply because of the employer for a limited amount of time.The courts outline two aspects that make a non-compete clause unreasonable: “(1) the restraint is greater than required to safeguard the employer’s legitimate interest or (two) if that interest is outweighed by the hardship to the employee and the most likely injury to the public.”3 In generating the determination of reasonableness, a court will appear at all of the circumstances surrounding the non-competition agreement. The initial factor, whether the restraint is higher than required to safeguard the employer’s interest, depends on the scope of the agreement. The scope has two elements of its own: the duration of the agreement and its geographic limitations. Courts will find that the restraint is too wonderful if they feel the limitations last too lengthy or cover too fantastic a geographic area.The second factor, regardless of whether the employer’s interest is outweighed by the hardship to the employee and the public, has been the focus of recent Arizona court choices. In Valley Medical Specialists v. Farber, the Arizona Supreme Court expressed its wariness of non-competition agreements in between healthcare experts. The court held that patients are entitled to be seen by the provider of their picking, regardless of the contractual obligations between their provider and her former employer, due to the fact the harm to patients who could lose the choice to see their chosen provider is higher than the employer’s economic interest in enforcing a non-competition clause.Due to the fact of the Farber selection, non-competition agreements between physicians and their employers are read quite narrowly, and every agreement is deemed on case-by-case basis to determine if the public policy considerations at play outweigh the employer’s interest in protecting its investment by way of enforcing the non-compete clause.Non-competes are less scrutinized when it comes to the sale of a practice. When a physician sells a practice, the value of the practice’s goodwill and its existing patient base normally figures prominently in into the acquire cost, so the buyer of the practice is allowed some protection from competition from the former owner.

The Blue Pencil Doctrine “Blue penciling” occurs when a court decides not to enforce specific sections of a non-competition agreement that it considers too broad, but nonetheless enforces the rest of the agreement. Rather of declining to enforce the complete agreement altogether or rewriting unenforceable provisions, the court will literally cross out grammatically severable, unreasonable provisions but keep the rest of the agreement intact. A key component of the blue-pencil doctrine in Arizona is that courts can strike out unenforceable parts of the contract, but it can’t otherwise add to or modify the terms. In the 2002 case Varsity Gold, Inc. v. Porzio, which represents the current law on non-competes in Arizona, the court stated that a judge could not try to reform or soften the contract not to compete in any way other than utilizing the blue-pencil rule to strike a severable provision. The court wrote, “Despite the fact that we will tolerate ignoring severable portions of a covenant to make it much more reasonable, we will not permit courts to add terms or rewrite provisions.”four

Step-Down ProvisionsStep-down provisions, combined with severability clauses, are the very best way to make positive a non-competition agreement is enforceable. These terms offer alternative time and area restrictions that enable a court utilizing the blue-pencil rule to strike restrictions it considers too broad whilst enforcing a less restrictive provision. A sample step-down provision might be comparable to the following:1. NONCOMPETITION. For the TIME PERIOD set forth in paragraph 2, Employee shall not, directly or indirectly, own, manage, operate, participate in or finance any business venture that competes with the Company within the Area. . . 2. TIME PERIOD. TIME PERIOD for purposes of paragraph 1 shall mean the period beginning as of the date of Employee’s employment with the Firm and ending on the date of death of the employee supplied, even so, that if a court determines that such period is unenforceable, TIME PERIOD shall finish 5 (five) years after the date of termination provided, nonetheless, that if a court determines that such period is unenforceable, TIME PERIOD shall finish six (6) months following the date of termination.5Because distinct courts rule differently on what provisions are overly broad, it is critical to have an attorney draft these provisions if the practice wants to make certain that they are not stricken altogether. Conclusion Non-competition agreements can be valuable for healthcare practices, but producing sure those agreements will be enforced can be really hard and requires a high level of precision. On the other hand, a physician who is struggling to work about a non-compete agreement can hardly ever know for sure if it is truly enforceable or not, because courts take into account every single one individually, contemplating all of the attendant circumstances. The ideal way to deal with non-competition agreements is to find an attorney with a thorough understanding of the law regarding these restrictive covenants.

DISCLAIMERThe information in this write-up has been ready for informational purposes only and does not constitute legal suggestions. Everyone reading this post should not act on any info contained therein without looking for expert counsel from an lawyer. The authors and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

About the Author

Edward O. Comitz, Esq. heads the Health and Disability Insurance Law Practice Section at Comitz | Beethe, 6720 N. Scottsdale Rd., Suite 150, Scottsdale, Arizona 85253, (480) 998-7800. Mr. Comitz has extensive knowledge in disability insurance coverage and poor faith litigation, primarily representing medical and dental professionals in reversing denials of their disability claims. For a lot more data about disability insurance concerns, please check out our disability insurance lawyer website at http://www.disabilitycounsel.net.

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