I recently came across an article published by a consulting company advising medical practices that “as a rule of thumb” physician non-compete agreements should not extend beyond a five-mile radius. Not only is this information wrong, but it also fails to acknowledge the differences between how various states treat physician non-compete agreements.
First of all, courts around the country have consistently found physician non-compete agreements with a radius of 15 to 75 miles to be reasonable where such restrictions were justified by a legitimate business interest.
For example, in Missouri, courts have held that: (1) a five-year restriction within a twenty-mile radius of the corporate limits of the city of St. Joseph, Missouri, was a reasonable restraint; (2) a covenant not to compete for five years within a radius of 60 miles of the City of Butler was reasonable; (3) a covenant not to compete, which stated that the doctor would not “perform any medical services or engage in the practice of neurology” within seventy-five miles of employer’s office, for a period of twenty-four months was reasonable.
In Idaho, courts have upheld 25 mile-radius restrictions for two- and even three-year terms. In Ohio, a court found that a 50-mile radius was reasonable. Finally, in New York, a court determined that a restrictive covenant not to compete between a physician and a medical group, for a period of five years, within a 30 mile radius was reasonable and enforceable.
In rural areas, where medical practices are located hundreds of miles apart, even larger geographic restrictions may be enforceable. In contrast, in urban areas, 20-mile non-competes may not be reasonable. Moreover, as medical practices merge or acquire new locations, non-compete agreements that covered one or two locations and were reasonable may become unreasonable when they begin to cover 15 or 20 locations and gobble up entire metroplexes or states.
Second, different states have different rules about what is considered a reasonable geographic area for a non-compete agreement. For example, Connecticut restricts physician covenants to a geographic scope of within a 15-mile radius from the primary site where a physician practiced. Tennessee will enforce physician non-compete agreements only if the geographic restriction does not exceed the greater of a 10-mile radius from the site of the healthcare provider or the county in which the healthcare provider’s practice is located. It will also allow physician non-competes without a geographic restriction if the physician is restricted only from practicing at any facility where the employer provided services during the physician’s time of employment.
Finally, there is no “rule of thumb” about what is reasonable, and medical practices need to consider what geographic restraints they need to put in place in order to protect a legitimate business interest, such as confidential information, trade secrets, goodwill, or patient base.
The following factors may affects how reasonable or unreasonable a particular geographic restraint is in a physician employment agreements is:
- In which state the practice is located
- Whether the practice is in a rural or urban area
- The type of medical practice
- The size of the practice
- The age of the practice
- The location of the patient base
- How far patients will travel
- Where the practice markets it services
Medical practices should consult with a qualified attorney when drafting non-compete agreements to make sure the geographic restraints are reasonable or risk having such restraints declared unenforceable in court or re-written by a judge in the middle of an enforcement lawsuit.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.