Location, location, location: The geographic facts about noncompete clauses

Is such a clause in your contract enforceable? It depends on where you live. During the past year, the Kansas Supreme Court upheld a clause, while the Tennessee Supreme Court ruled in the opposite direction.

By Beth Wilson, amednews correspondent — Posted Jan. 30, 2006

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If John Rumisek, MD, had it to do again, the Kansas surgeon might reconsider the terms of his employment contract with Wichita Surgical Specialists and ensure that any intended changes were actually executed.

Rumisek and three other heart surgeons recently found themselves embroiled in a legal battle over facets of their noncompete contracts, which restricted them from practicing within county lines or within a 75-mile radius of their former employer. The physicians thought they had eliminated their contract's geographic restrictions, replacing them with a buyout option. Although the governing group of 25 surgeons had approved the change, the paperwork for three of the four physicians was never done.

When the four surgeons left the practice to set up shop together, they sued, looking to invalidate their noncompete clauses.

Late last year, the Kansas Supreme Court ruled against the physicians, declaring, in essence, "a contract is a contract."

Dr. Rumisek, for the first time in his life, is unemployed. In hindsight, he regrets not taking his employment contract more seriously and hopes others can learn from his example.

"All of us, being physicians, never thought too much as to the specifics of the contract," he said. "It was more like, 'Yeah, yeah, yeah, let's go. Let's get to work.' "

Every day more physicians encounter noncompete clauses in employment agreements, whether in signing a contract or drafting one. In many cases, noncompete contracts restrict a physician from practicing medicine within a geographic area for a set number of years after the contract is terminated.

Not surprisingly, an increasing number of contract arguments are settled in state supreme courts, with each state interpreting the legal issues in its own way.

"The health care industry is becoming more 'entrepreneurish.' There is more contentiousness in the medical field because it's more competitive," said Kevin Grady, an Atlanta health care attorney who has held leadership roles in the Georgia Academy of Health Care Attorneys and the American Bar Assn.

Although noncompete cases are gaining momentum in the legal system, there is no one clear trend nationally as to whether noncompete clauses are enforceable. Some states, including California and Colorado, simply do not allow noncompete provisions for physicians, whereas most other states allow restrictive covenants if they are reasonable in scope.

"It's a question of state law, not federal law," Grady noted. "You're not seeing a major shift in one direction or the other."

This was illustrated earlier this year, when the Kansas and Tennessee supreme courts ruled in decidedly different directions on the issue. In June, Tennessee declared an internist's noncompete agreement invalid, finding that a patient's right to receive continued care from his or her physician outweighed a medical center's business interest.

In September, the Kansas Supreme Court denied the appeal from Dr. Rumisek and his colleagues, upholding an earlier decision that found their noncompete contracts reasonable, valid and binding.

Such a difference in interpretation among states is not uncommon, said Grady, who recommends physicians consult attorneys in their respective states for guidance. "The [state] courts are not in lockstep in regards to this."

In the 3-1 Tennessee opinion, the court said: "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 cannot allow it to be denied because of an employer's restrictive covenant."

The tale from Tennessee

The case pitted internist David Udom, MD, against his former employer, the Murfreesboro Medical Clinic, in Murfreesboro, Tenn.

The nearly 60-physician private practice hired Dr. Udom in 2000 with a two-year employment agreement that included a noncompete clause. The contract prohibited him from practicing medicine within a 25-mile radius for 18 months after it was terminated unless he paid the center roughly one year's salary as a contract "buyout."

When the medical center decided not to renew his contract, Dr. Udom looked for other positions in the Murfreesboro area, where he lived and wished to stay. He considered positions in Nashville, about 40 miles away, but was told that was too far to respond to emergencies, said Doug Janney, Dr. Udom's lawyer.

Dr. Udom said he also proposed working for area emergency departments or a Veterans Affairs medical center, which he thought would not pose a competitive threat, to no avail. In the end, Dr. Udom set up private practice in Smyrna, Tenn., which was about 15 miles from the medical center. The MMC promptly filed suit, charging that Dr. Udom violated the noncompete provision.

"I had exhausted all my options," Dr. Udom said after the ruling. "At the time, you do what is right. I looked at what the reasonable thing to do was, given my circumstances, and what I thought would be best for my patients."

The Tennessee Supreme Court relied heavily on the American Medical Association's position regarding noncompete agreements. AMA policy states that noncompete clauses "restrict competition, disrupt continuity of care and potentially deprive the public of medical services."

The AMA also discourages any agreement that restricts a doctor's right to practice for a set time or in a set area when employment, a partnership or a corporate agreement is terminated. The policy further states that "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."

In its opinion, however, the Tennessee court noted that state law does allow noncompete contracts when the employer is a hospital or an affiliate of a hospital or when the employer is a "faculty practice plan" associated with a medical school.

Overall, Janney admits the case was far from a slam dunk. "This was a very close issue. It was a very tough, hard-fought case."

A different view in Kansas

The Kansas Supreme Court, meanwhile, took a different position when it ended the three-year legal battle between Wichita Surgical Specialists and the four surgeons who left the practice in March 2002 to start their own business.

The surgeons sued to invalidate their noncompete clauses, but the Kansas Supreme Court generally follows the policy that if parties have entered a contract, they should abide by the contract unless it is unreasonable, said Gary L. Ayers, a Wichita, Kansas-based attorney for the Wichita Surgical Specialists.

With that premise in mind, the court found that protecting a referral base is a legitimate argument and that the noncompete contracts signed by the surgeons: Dr. Rumisek; Robert Fleming, MD; Gary Benton, MD; and Badr Idbeis, MD, were reasonable.

Regarding a patient's right to choose, Ayers said, "there is no such thing as unfettered choice."

Issues involving insurance, network changes and retirement, for example, may force a patient to choose a new physician, he said, noting that the court believed that "as long as patients have access to the type of physician they need, their choice is protected."

Although the four surgeons' attorney, Wichita lawyer Gary Austerman, cited the Tennessee ruling in his argument, Ayers said, "The two cases are different, and we're not Tennessee. Our state begins with the premise of freedom of contract, meaning a contract is a contract."

Austerman, who argued that a physician, especially a heart surgeon, should not be forced to lose a patient because of a noncompete agreement, said he believed the court was shortsighted, blinded by a view that "a contract is a contract is a contract." He said the court did not thoroughly examine the policy points.

Two of the doctors were prohibited from practicing in Sedgwick County, Kansas, and a third could not practice within 75 miles for two years. Dr. Idbeis, the only doctor with a buyout clause and who set up practice in the area, was allowed to continue running his new practice, assuming he will pay to buy out his contract.

Read the fine print, talk to an attorney

Tensions leading to and after a court decision can run high, and the ramifications for physicians are substantial.

"This is not like a typical contract dispute," Grady said. "Emotions are very strong. It's like litigating a domestic case. It's like a divorce."

Austerman encourages all physicians to read, understand and obtain legal advice on all restrictions in a noncompete pact, including geographic, time and type of employment. He also recommends always trying to negotiate a buyout option.

Physicians also may attempt to reduce the agreement's buyout amount, time period or geographic scope, in addition to clarifying or negotiating what type of medicine can or cannot be practiced after a contract ends, Grady said.

In general, physicians should approach contract negotiations with the same gravity as they approach medicine, Dr. Rumisek suggests.

"We pay attention to the patient's needs," he noted. "The same goes for contracts. Each of us should have taken a comprehensive look to make sure everything was taken care of, the way we would with a patient."

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Cases at a glance

Murfreesboro Medical Clinic, PA v. David Udom, MD

Venue: Tennessee Supreme Court
At issue: The validity of a physician's noncompete contract that restricted where a physician practiced medicine in the 18 months after he terminated his contract, unless he exercised the buy-out option.
Decision: The court said the noncompete contract was invalid, noting that a patient's right to choose is more important than the medical center's business interest.

Badr Idbeis, MD, Gary S. Benton, MD, Robert H. Fleming, MD, and John D. Rumisek, MD, v. Wichita Surgical Specialists, PA

Venue: Kansas Supreme Court
At issue: The validity of four heart surgeons' noncompete contracts that restricted where they could practice medicine for two years after terminating their contracts. One physician had a buy-out option.
Decision: The court said the noncompete contracts were reasonable, valid and binding, ruling that "a contract is a contract." The court noted that protecting a referral base is a valid argument for noncompete pacts.

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States divided on noncompete clauses

Each state differs in its approach to noncompete contracts for physicians. Here is a broad look at state laws and state case law. Physicians should contact local attorneys well-versed in this issue for specifics.

States with statutes

Allow contracts to be enforced: Florida; Hawaii; Louisiana (may not exceed two years) ; Oklahoma; Oregon; Michigan; South Dakota (may not exceed two years); Texas (see stipulations below); West Virginia; Wisconsin

Do not allow contracts to be enforced: Alabama; California; Colorado; Delaware; Massachusetts; North Dakota

States with case law

Allow contracts to be enforced: Arkansas; Arizona; Connecticut; District of Columbia; Georgia; Idaho; Illinois; Indiana; Iowa; Kansas; Kentucky; Maine; Minnesota; Missouri; Nebraska (see stipulations below); New Hampshire; New Jersey; New Mexico; New York; Nevada; North Carolina; Ohio; Pennsylvania; Virginia; West Virginia: Wyoming

Does not allow contracts to be enforced, except when the employer is a hospital, a hospital affiliate or part of a faculty practice plan associated with a medical school: Tennessee


Alaska; Maryland; Mississippi; Montana; Rhode Island; South Carolina; Utah; Vermont; Washington


Louisiana, South Dakota: May not exceed two years.

Texas: Agreement must be reasonable; must allow a physician access to patient medical records and a list of patients seen within one year of the termination;must include a reasonable buyout; and cannot prohibit a physician from providing care during acute illness, even after the termination.

Nebraska: The former employee can be restricted from working for, or soliciting, only clients with whom he or she did business and had personal contact.

Tennessee: Contracts not allowed except when the employer is a hospital, a hospital affiliate or part of a faculty practice plan associated with a medical school.

Source: Attorney Arnold H. Pedowitz, associate editor of "Covenants Not To Compete: A State-by-State Survey"

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