The legal implications of noncompetition agreements in physician contracts

Journal of Legal Medicine

Volumn 20, Issue 4, 1999, Pages 457-477

  Di Dio, Arthur S ^a  

^a POWERS PYLES SUTTER AND VERVILLE PC   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CONTRACT; DOCTOR PATIENT RELATION; HOSPITAL PHYSICIAN; LEGAL ASPECT; MEDICAL EDUCATION; MEDICAL PRACTICE; REVIEW; FINANCIAL MANAGEMENT; HEALTH INSURANCE; HUMAN; MEDICAL ETHICS; MEDICAL SOCIETY; UNITED STATES;

AMERICAN MEDICAL ASSOCIATION; COMPETITIVE MEDICAL PLANS; CONTRACT SERVICES; ETHICS, MEDICAL; HUMANS; UNITED STATES;

EID: 0033255041     PISSN: 01947648     EISSN: None     Source Type: Journal    
DOI: 10.1080/01947649909511101     Document Type: Review

References (139)

1. 1 In re American Medical Ass'n, 899 F.T.C. 440 (1982).
2. 2 See Berg, Enforcement of Covenants Not to Compete Between Physicians: Protecting Doctors' Interests at Patients' Expense, 45 Rutgers L. Rev. 1, 9 (1992).
3. 3 The first case on record to deal with a noncompete agreement is the Dyer's Case, Y.B. Mich. 2 Hen. 5 (C.P. 1414). Dyer's Case stands for the proposition that all such restraints were invalid regardless of consideration of the reasonableness of the restraint. See Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 636-37 (1960).
4. 4 See Note, The Antitrust Implications of Employee Noncompete Agreements: A Labor Market Analysis, 66 Minn. L. Rev. 519 (1982).
5. 5 Raimonde v. Van Vlerah, 325 N.E.2d 544, 547 (Ohio 1975).
6. 6 Iredell Digestive Disease Clinic v. Petrozza, 373 S.E.2d 449, 452 (N.C. App. 1988).
7. 7 See Berg, supra note 2, at 15-30.
8. 8 See Reddy v. Community Health Found. of Man, 298 S.E.2d 906, 912 (W. Va. 1982).
9. 9 Id.
10. 10 See, e.g., Saliterman v. Finney, 361 N.W.2d 175, 178 (Minn. App. 1985) (holding that, although a confidential patient list was not a "trade secret," it was a protectable interest).
11. 11 See, e.g., Wausau Medical Ctr. v. Asplund, 514 N.W.2d 34,40 (Wis. App. 1994) (reasoning that patient lists are analogous to a business' stock of customers and thus can comprise a protectable legitimate interest); Pollack v. Calimag, 458 N.W.2d 591, 599 (Wis. App. 1990) (reasoning that a covenantee had a legitimate interest in protecting itself from unfair competition that would result if its former employer had access to a patient list).
12. 12 9 Del. J. Corp. L. 180, 182 (Del. Ch. 1984).
13. 13 See Berg, supra note 2, at 21.
14. 14 Id. at 15.
15. 15 Id. at 16.
16. 16 538 N.E.2d 651 (Ill. App. 1989).
17. 17 The court described how the founder marketed the practice by establishing contacts, speaking publicly, serving on the staff of several hospitals, and using "various other means" to expand the practice to include three eye centers and to serve eight hospitals. Id.
18. 18 See Berg, supra note 2, at 18.
19. 19 Id. at 19. See, e.g., Isuani v. Manske-Sheffield Radiology Group, 798 S.W.2d 346, 347 (Tex. App. 1990) (holding that, because the employer had paid for physician-employee's training and because he had acquired unique skills at the "expense of the group," the restrictive covenant was enforceable).
20. 20 Reddy, 298 S.E.2d at 913.
21. 21 Id.
22. 22 See Berg, supra note 2, at 19.
23. 23 Id.
24. 24 See, e.g., Fields Found. v. Christensen, 309 N.W.2d 125, 130 (Wis. App. 198) (reasoning that "experience and skill... gained during his employment does not justify a post-employment restriction").
25. 25 Ellis v. McDaniel, 596 P.2d 222, 224 (Nev. 1979).
26. 26 Id. at 225.
27. 27 See Berg, supra note 2, at 23.
28. 28 Id. The "Blue Pencil" doctrine is employed when a court "shaves" covenants down to their proper proportions, "severing the unreasonable terms and enforcing the remainder." Reddy, 298 S.E.2d at 914.
29. 29 596 P.2d 222 (Nev. 1979). See also Fields Found., 309 N.W.2d at 125 (reasoning that a covenant not to compete was enforceable only to the extent of prohibiting a departing physician from performing a first trimester abortion, rather than practice obstetrics and gynecology, because his practice under the former employer was limited to performing first trimester abortions).
30. 30 Ellis, 596 P.2d at 223.
31. 31 Id. at 224-25.
32. 32 See Berg, supra note 2, at 25.
33. 33 Id.
34. 34 Id. at 26.
35. 35 See Note, The Antitrust Ramifications of Noncompetition Clauses in the Partnership and Employment Agreements of Doctors, 30 Loy. L. Rev. 307, 326 (1984).
36. 36 See Berg, supra note 2, at 28.
37. 37 Id.
38. 38 1991 WL 35010, at *4 (Ohio App. 1991).
39. 39 See Berg, supra note 2, at 29.
40. 40 418 S.E.2d 256, 257 (N.C. App. 1992).
41. 41 See Note, supra note 4, at 520.
42. 42 Id. at 525.
43. 43 See Grossman & Scoggins, The Legal Implications of Covenants Not to Compete in Veterinary Contracts, 71 Neb. L. Rev. 826, 858 (1992).
44. 44 Id. at 859.
45. 45 Id.
46. 46 See Berg, supra note 2, at 10. The nine states that regulate covenants not to compete between physicians, either directly through legislation or by judicial interpretation of state antitrust laws, are Alabama, California, Colorado, Delaware, Florida, Louisiana, Massachusetts, Montana, and North Dakota. See Ala. Code § 8-1-1(a) (1998); Cal. Bus. & Prof. Code § 16600 (West 1998); Colo. Rev. Stat. Ann. § 8-2-113(3) (West 1998); Del. Code Ann. tit. 6, § 2707 (1997); Fla. Stat. Ann. § 542.33(1) (West 1998); La. Rev. Stat. Ann. § 921 (West 1998); Mass. Gen. Laws ch. 112, § 12X (1998); Mont. Code Ann. § 28-2-703 (1997); N.D. Cent. Code § 9-08-06 (1997).
47. 47 See Colo. Rev. Stat. Ann. § 8-2-113(3) (West 1998); Del. Code Ann. tit. 6, § 2707 (1997); Mass. Gen. Laws ch. 112, § 12X (1998). The other six states prohibit covenants that restrict the practice of a "profession."
48. 48 See Berg, supra note 2, at 10 n.50.
49. 49 Blank v. Preventive Heallh Programs, 504 F. Supp. 416 (S.D. Ga. 1980).
50. 50 See Grossman & Scoggins, supra note 43, at 866.
51. 51 Id.
52. 52 15 U.S.C § 1 (1988).
53. 53 See Grossman & Scoggins, supra note 43, at 867-68.
54. 54 421 U.S. 773, 780 (1975).
55. 55 Id. at 787.
56. 56 See, e.g., Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 347 (1982) ("Nor does the fact that doctors-rather than nonprofessionals-are the parties to the price fixing agreements support the respondents' position."). See also Williams v. St. Joseph's Hosp., 629 F.2d 448, 453 (7th Cir. 1980) ("with regard to its economic aspects professional activity is subject to the policies of the antitrust laws").
57. 57 See Grossman & Scoggins, supra note 43, at 869.
58. 58 See Gordon, Antitrust in the Health Care Field-Subject Matter Jurisdiction, 18 Colo. Law. 1113 (1989).
59. 59 444 U.S. 232 (1980).
60. 60 Id. at 242-43.
61. 61 Mitchell v. Frank R. Howard Memorial Hosp., 853 F.2d 762, 764 (9thCir. 1988).
62. 62 425 U.S. 738 (1976).
63. 63 Id. at 744-46.
64. 64 See, e.g.. Furlong v. Long Island College Hosp., 710 F.2d 922 (2d Cir. 1983) (holding that an allegation of receipt of third-party payments from out-of-state insurers totaling $120,000 was insufficient to establish a cognizable relation to interstate commerce); Hahn v. Oregon Physicians' Serv., 508 F. Supp. 970, 977 (D. Ore. 1981) (holding that out-of-state insurance payments alone have been held inadequate to establish the jurisdictional element when they constituted 0.025% of a plaintiff's income); Mitchell, 853 F.2d at 762 (holding that neither the hospital's receipt of health insurance payments from out-of-state insurance programs nor the hospital's purchase of medical supplies from out-of-state suppliers amounted to a showing of substantial effect on interstate commerce for Sherman Act jurisdictional purposes).
65. 65 500 U.S. 322 (1991).
66. 66 Id. at 329-30.
67. 67 Id. at 332.
68. 68 15 U.S.C. § 1 (1988).
69. 69 Standard Oil Co. v. United States, 221 U.S. 1, 58 (1911).
70. 70 National Soc'y of Prof. Eng'rs v. United State, 435 U.S. 679, 692 (1978).
71. 71 Northern Pac. R.R. v. United States, 356 U.S. 1, 5 (1958). Examples of commercial practices that have been held to be per se illegal include price fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); horizontal market allocation, United Stales v. Topco Associates, 405 U.S. 596 (1972); group boycotts, Federal Trade Comm. v. Superior Court Trial Lawyers Ass'n, 493 U.S. 411 (1990); and tying arrangements, International Salt Co. v. United States, 332 U.S. 392 (1947).
72. 72 Consultants & Designers, Inc. v. Butler Serv. Group, 720 F.2d 1553, 1562 (11th Cir. 1983).
73. 73 National Soc'y of Prof. Eng'rs, 435 U.S. at 692.
74. 74 Consultants & Designers, Inc., 720 F.2d 1553; Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255 (7th Cir. 1981).
75. 75 Lektro-Vend Corp., 66 F.2d at 265.
76. 76 See Grossman & Scoggins, supra note 43, at 873.
77. 77 According to Grossman and Scoggins, the distinction between the common-law standard and the federal antitrust standard has been imprecise, particularly when courts evaluate covenants not to compete. Id. at 873-74.
78. 78 See Sullivan, Revisiting the "Neglected Stepchild": Antitrust Treatment of Postemployment Restraints of Trade, 1977 U. Ill. L.F. 621, 634.
79. 79 Lektro-Vend Corp., 66 F.2d at 269.
80. 80 Consultants & Designers, Inc., 720 F.2d at 1562.
81. 81 Id.
82. 82 Lektro-Vend Corp., 66 F.2d at 269. "Because the Act is designed to combat adverse effects upon competition ... plaintiffs must prove more than mere injury to a competitor." Id.
83. 83 Consultants & Designers, Inc., 720 F.2d at 1562.
84. 84 See Grossman & Scoggins, supra note 43, at 875.
85. 85 Id.
86. 86 Id.
87. 87 Consultants & Designers, Inc., 720 F.2d at 1562.
88. 88 See Grossman & Scoggins, supra note 43, at 875.
89. 89 Id.
90. 90 Lektro-Vend Corp., 66 F.2d at 266.
91. 91 See Grossman & Scoggins, supra note 43, at 873.
92. 92 See Bork, Ancillary Restraints & the Sherman Act, 15 ABA Section of Antitrust Law Proceedings 211, 213 (1959). quot;The most valuable asset of a business might be the good will of the public toward its owner. Should he wish to sell the business the owner could not get a price reflecting the asset of good will or the true going concern value of his business unless he could promise the purchaser not to return to compete with the business sold." Id.
93. 93 Aydin Corp. v. Loral Corp., 718 F.2d 897, 900 (9th Cir. 1983).
94. 94 Lektro-Vend Corp., 66 F.2d at 255; Aydin Corp., 718 F.2d at 897; Consultants & Designers, Inc., 720 F.2d at 1553.
95. 94 Lektro-Vend Corp., 66 F.2d at 255; Aydin Corp., 718 F.2d at 897; Consultants & Designers, Inc., 720 F.2d at 1553.
96. 94 Lektro-Vend Corp., 66 F.2d at 255; Aydin Corp., 718 F.2d at 897; Consultants & Designers, Inc., 720 F.2d at 1553.
97. 95 Blank, 504 F. Supp. at 416. In Blank, five radiologists continued to practice in violation of a restrictive covenant in their contract with Preventive Health Programs (PHP). PHP refused to make the last payments due to the radiologists. The radiologists then brought suit claiming, inter alia, that the restrictive covenant violated the Sherman Act. The court granted summary judgment to PHP because the plaintiffs did not have an antitrust injury. The radiologist's claim, reasoned the court, sought damages resulting from a breach of contract, and such damages were not appropriately considered an antitrust injury.
98. 96 One commentator argues that, as long as courts define the relevant market as the product market, rather than the labor market, the anticompetitive "effect will never be great enough in individual cases to cause a court using" the federal antitrust laws to invalidate the restrictive covenant. ee Note, supra note 4, at 525.
99. 97 See Berg, supra note 2, at 44.
100. 98 Id.
101. 99 Id.
102. 100 See, e.g., Dwyer v. Jung, 336 A.2d 498 (N.J. Super. Ct. Ch. Div. 1975); Cohen v. Lord, Day & Lord, 550 N.E.2d 410 (N.Y. 1989); Gray v. Martin, 663 P.2d 1285 (Ore. App. 1983).
103. 101 Dwyer, 336 A.2d at 500.
104. 102 See Kafker, Golden Handcuffs: Enforceability of Noncompetition Clauses in Professional Partnership Agreements of Accountants, Physicians, and Attorneys, 31 Am. Bus. L.J. 31, 41 (1993).
105. 103 See Berg, supra note 2, at 36-37.
106. 104 See Kafker, supra note 102, at 42.
107. 105 336 A.2d 498 (N.J. Super. Ct. Ch. Div. 1975).
108. 106 Id. at 500.
109. 107 Cohen, 550 N.E.2d at 410; Gray, 663 P.2d at 1285.
110. 108 Cohen, 550 N.E.2d at 411.
111. 109 See Karlin, 390 A.2d at 1161; Ohio Urology Inc. v. Poll, 594 N.E.2d 1027 (Ohio App. 1991) (rejecting referee's finding that restrictive covenants between physicians are contrary to public policy and holding that such covenants are to be judged under the common-law standard of reasonableness).
112. 110 Karlin, 390 A.2d at 1163.
113. 111 Id. at 1167. The court reasoned that the restrictive covenant in Dwyer prohibited the covenantor from maintaining any professional relationship whatsoever with a client, while the covenant here posed merely a geographic restraint. In this case, Weinberg's patients could continue to be treated by him; they would just have farther to travel. Id.
114. 112 See Berg, supra note 2, at 41.
115. 113 Id. Other commentators similarly have argued that the disparate treatment between attorneys and physicians with regard to restrictive covenants is unjustified. "Nor does the justification of lawyer autonomy hold up when lawyers are compared with other professionals. Doctors, engineers and architects all form professional relationships marked by confidence and trust." See Parker, Non-Compete Agreements Between Lawyers : An Economic Analysis, 40 Res Gestae 12, 13 (Oct. 1996).
116. 113 Id. Other commentators similarly have argued that the disparate treatment between attorneys and physicians with regard to restrictive covenants is unjustified. "Nor does the justification of lawyer autonomy hold up when lawyers are compared with other professionals. Doctors, engineers and architects all form professional relationships marked by confidence and trust." See Parker, Non-Compete Agreements Between Lawyers : An Economic Analysis, 40 Res Gestae 12, 13 (Oct. 1996).
117. 114 See Alexander, Should Alabama Adopt a Physician-Patient Privilege?, 45 Ala. L. Rev. 261, 266 (1993).
118. 115 See Friedland, Physician-Patient Confidentiality: Time to Re-Examine a Venerable Concept in Light of Contemporary Society and Advances in Medicine, 15 J. Legal Med. 249, 251 (1994).
119. 116 See Shuman, The Origins of the Physician-Patient Privilege and Professional Secret, 39 Sw. L.J. 661, 664 (1985).
120. 117 See Torres, Wagner, & Proper, Terminating the Physician-Patient Relationship, 20 J. Dermatol. Surg. Oncol. 144 (1994).
121. 118 Id. Abandonment can render a physician liable either through negligence or breach of contract.
122. 119 Id.
123. 120 See Flocke, Stange, & Zyzanski, The Impact of Insurance Type and Forced Discontinuity on the Delivery of Primary Care, 45 J. Fam. Pract. 129, 130 (1997).
124. 121 The impact of forced discontinuity of care has been studied in the contexts of residency programs and managed care. See id. See also Wasson, Sauvigne, Moglielnicki, Frey, Sox, Gaudette, & Rockwell, Continuity of Outpatient Medical Care in Elderly Men: A Randomized Trial, 252 J.A.M.A. 2413 (1984); Serwint & Johnson, The Impact on Families of Pediatric Resident Departure from a Continuity Clinic Practice, 151 Arch. Pedriatr. Adolesc. Med 679 (1997); Becker, Drachman, & Kirscht, Continuity of Pediatrician: New Support for an Old Shibboleth, 84 J. Pediatrics 599 (1974); Toms, An Analysis of the Impact of the Loss of a Primary Care Physician on a Patient Population, 4 J. Fam. Pract. 115 (1977).
125. 121 The impact of forced discontinuity of care has been studied in the contexts of residency programs and managed care. See id. See also Wasson, Sauvigne, Moglielnicki, Frey, Sox, Gaudette, & Rockwell, Continuity of Outpatient Medical Care in Elderly Men: A Randomized Trial, 252 J.A.M.A. 2413 (1984); Serwint & Johnson, The Impact on Families of Pediatric Resident Departure from a Continuity Clinic Practice, 151 Arch. Pedriatr. Adolesc. Med 679 (1997); Becker, Drachman, & Kirscht, Continuity of Pediatrician: New Support for an Old Shibboleth, 84 J. Pediatrics 599 (1974); Toms, An Analysis of the Impact of the Loss of a Primary Care Physician on a Patient Population, 4 J. Fam. Pract. 115 (1977).
126. 121 The impact of forced discontinuity of care has been studied in the contexts of residency programs and managed care. See id. See also Wasson, Sauvigne, Moglielnicki, Frey, Sox, Gaudette, & Rockwell, Continuity of Outpatient Medical Care in Elderly Men: A Randomized Trial, 252 J.A.M.A. 2413 (1984); Serwint & Johnson, The Impact on Families of Pediatric Resident Departure from a Continuity Clinic Practice, 151 Arch. Pedriatr. Adolesc. Med 679 (1997); Becker, Drachman, & Kirscht, Continuity of Pediatrician: New Support for an Old Shibboleth, 84 J. Pediatrics 599 (1974); Toms, An Analysis of the Impact of the Loss of a Primary Care Physician on a Patient Population, 4 J. Fam. Pract. 115 (1977).
127. 121 The impact of forced discontinuity of care has been studied in the contexts of residency programs and managed care. See id. See also Wasson, Sauvigne, Moglielnicki, Frey, Sox, Gaudette, & Rockwell, Continuity of Outpatient Medical Care in Elderly Men: A Randomized Trial, 252 J.A.M.A. 2413 (1984); Serwint & Johnson, The Impact on Families of Pediatric Resident Departure from a Continuity Clinic Practice, 151 Arch. Pedriatr. Adolesc. Med 679 (1997); Becker, Drachman, & Kirscht, Continuity of Pediatrician: New Support for an Old Shibboleth, 84 J. Pediatrics 599 (1974); Toms, An Analysis of the Impact of the Loss of a Primary Care Physician on a Patient Population, 4 J. Fam. Pract. 115 (1977).
128. 121 The impact of forced discontinuity of care has been studied in the contexts of residency programs and managed care. See id. See also Wasson, Sauvigne, Moglielnicki, Frey, Sox, Gaudette, & Rockwell, Continuity of Outpatient Medical Care in Elderly Men: A Randomized Trial, 252 J.A.M.A. 2413 (1984); Serwint & Johnson, The Impact on Families of Pediatric Resident Departure from a Continuity Clinic Practice, 151 Arch. Pedriatr. Adolesc. Med 679 (1997); Becker, Drachman, & Kirscht, Continuity of Pediatrician: New Support for an Old Shibboleth, 84 J. Pediatrics 599 (1974); Toms, An Analysis of the Impact of the Loss of a Primary Care Physician on a Patient Population, 4 J. Fam. Pract. 115 (1977).
129. 122 See Hurley, Gage, & Freund, Rollover Effects in Gatekeeper Programs: Cushioning the Impact of Restricted Choice, 28 Inquiry 375 (1991). See also Flocke et al., supra note 120, at 133.
130. 122 See Hurley, Gage, & Freund, Rollover Effects in Gatekeeper Programs: Cushioning the Impact of Restricted Choice, 28 Inquiry 375 (1991). See also Flocke et al., supra note 120, at 133.
131. 123 See Wasson et al., supra note 121, at 2413.
132. 124 See Becker et al., supra note 121, at 599.
133. 125 Id. See also Flocke et al., supra note 120, at 133.
134. 126 See Flocke et al., supra note 120, at 133.
135. 127 Id.
136. 128 Id.
137. 129 See Toms, supra note 121, at 115.
138. 130 See Flocke et al., supra note 120, at 134.
139. 131 See Sinusas, Patient's Attitudes Toward the Closing of a Medical Practice, 28 J. Fam. Pract. 561, 563 (1989). This study revealed that, after terminating a physician-patient relationship, over 50% of patients required several visits to become comfortable with a new physician, while nearly 10% required several years to attain comfort.