As a general rule, courts in Tennessee will enforce non-compete agreements where the restrictions are found to be reasonable. As outlined in my recent blog post, there are a number of factors to consider when determining the reasonableness and enforceability of a non-compete agreement. However, non-compete agreements for health care professionals implicate certain public policy concerns absent in other industries.
Non-compete agreements for physicians and other health care professionals pose the unique issue of balancing the interests of patients against a physician’s practice or employer. On one hand, a patient’s freedom to seek treatment with the physician of her choosing and similar ethical concerns lean in favor of finding health care non-compete agreements unenforceable. On the other hand, the sanctity of contract law and the desire to protect a medical practice’s business interests from departing employees support the enforcement of such provisions.
The American Medical Association, in its Code of Medical Ethics, states that “covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services” and the AMA “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.” Code of Medical Ethics, Opinion 9.02.
The Tennessee Supreme Court Weighs In
In 2005, the Tennessee Supreme Court issued an important decision on this subject, Murfreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674 (Tenn. 2005). In this case, a doctor signed an employment agreement containing a non-compete clause, restricting the doctor from practicing within a 25-mile radius of where he formerly practiced for a period of 18 months. Following termination of the employment relationship, the medical practice sought to enforce the agreement and contended that it had a protectable business interest in the resources it expended in providing training, office space, administrative support and salary to the doctor. The doctor argued public policy considerations stemming from the patient-physician relationship prevented enforcement of the non-compete restriction. The Tennessee Supreme Court agreed with the doctor and the positions of the AMA, holding that all physician non-compete agreements are unenforceable. In supporting its decision, the Court stated:
Having a greater number of physicians practicing in a community benefits the public by providing greater access to health care. Increased competition for patients tends to improve quality of care and keep costs affordable. Furthermore, a person has a right to choose his or her physician and to continue an on-going professional relationship with that physician. Enforcing covenants not to compete against physicians could impair or even deny this right altogether.
. . . .
The right of a person to choose the physician that he or she believes is best able to provide treatment is so fundamental that we can not allow it to be denied because of an employer’s restrictive covenant.
Udom, 166 S.W.3d at 683-84.
Health Care Non-Compete Legislation
Following the Murfreesboro Medical Clinic, P.A. v. Udom decision, the Tennessee legislature enacted a statute that essentially reversed the Court’s decision. The statute allows health care non-compete agreements subject to certain limitations. Under the current version of the statute, a non-compete agreement is enforceable where the restriction is for 2 years or less and the geographic restriction is 1) limited to a 10-mile radius from where the health care provider practiced, 2) limited to the county in which the health care provider practiced, or 3) the agreement provides no geographic restriction, but the health care provider is prevented from practicing at any facility his former employer serviced while he was employed or contracted there.
The statute applies not only to physicians, but also to other health care providers, including podiatrists, chiropractors, dentists, optometrists, osteopathic physicians, and psychologists. The statute does not apply, however, to emergency medicine physicians.
It is important to note that when the a non-compete agreement is entered into as part of a larger arrangement to purchase the physician’s practice, the non-compete agreement is typically enforceable where the duration and geographical limitations are reasonable under the circumstances. In these situations, the provisions are considered reasonable unless proven otherwise. “Reasonableness”, of course, is often difficult to define, so the agreement must be analyzed in the context of the circumstances of each case.
Do you have questions or concerns regarding a health care employment or non-compete agreement? Contact the Business Litigation & Dispute Resolution Attorneys at Thompson Burton PLLC, who are regularly called upon to prepare, review, negotiate, and litigate non-compete agreements on behalf of businesses and individuals.