Kansas court enforces noncompete clause

A Kansas appeals court recently affirmed the enforceability of noncompete clauses in a ruling that puts the spotlight on issues that can arise in drafting or signing the employment contracts.

Kansas is among a majority of states that consider noncompete clauses legal, with varying case law or statutes as to when and how the provisions can be used. Eight states -- Alabama, California, Colorado, Delaware, Massachusetts, North Dakota, Tennessee and Texas -- have been known to outlaw or significantly restrict such clauses.

In June, the Kansas Court of Appeals upheld a contract that restricted a family physician from practicing for three years in the same county as the group she left unless she paid the clinic 25% of her earnings during those three years after her termination.

In its decision, the court analyzed four factors to determine the validity of the contract provision. The court looked at whether the restrictive covenant:

• Protected a legitimate business interest of the employer.
• Created an undue burden on the employee.
• Harmed the public welfare.
• Contained time and geographic limitations that were reasonable.

In upholding the noncompete clause, the court found that Wichita Clinic PA had a legitimate interest in protecting its patient base and the investment it made in establishing the practice of Michelle M. Louis, DO, when she joined the group in 1991. The court said the contract did not unfairly restrict competition or patient access because Dr. Louis had the option to continue practicing in the area, where other family physicians were available.

Gary M. Austerman, Dr. Louis' attorney, said the court essentially ruled that "a contract is a contract" while giving "short shrift" to other concerns, including patient care. Dr. Louis plans to petition the Kansas Supreme Court to take her case.

"A doctor's right to practice and continue her relationship with her patients in this case is greater than the employer's right to restrain that right," Austerman said. "Patient choice is affected any time you say you can't take care of patients just because of a business relationship."

Austerman said Wichita Clinic -- a practice of nearly 200 multispecialty physicians -- was not harmed by Dr. Louis' departure, and the contract was aimed at protecting itself from competition rather than protecting patient care. He argued that the 25% damages clause imposed an arbitrary penalty on Dr. Louis and was not intended to apply to the income she would make when she left the clinic in 2004.

AMA policy states that covenants not to compete "restrict competition, disrupt continuity of care and potentially deprive the public of medical services." The AMA discourages any agreement that restricts the right of a physician to practice medicine and considers noncompete clauses unethical if they are excessive in scope.

Striking a balance

Gary L. Ayers, an attorney for Wichita Clinic, said the group's contract struck an appropriate balance.

He said the clinic hired Dr. Louis after she completed her residency and helped set up her practice with an existing source of patient contacts and referrals, and by covering administrative and overhead costs. But if doctors decide to leave and take a portion of their patients with them, the group would lose out financially without some reimbursement arrangement, Ayers said. As a result, patient care would suffer.

Restrictive covenants "allow groups to protect their patient base and in turn give them the ability to grow the practice to provide a vast array of patient services," Ayers said.

Doctors on either side of the negotiating table should consult legal counsel to know where their state stands on enforcing noncompete provisions, said Richard H. Sanders, a Chicago-based health care lawyer with Vedder Price.

Employers drafting contracts should make sure time and distance limitations are reasonable and reflect where the practice draws its patient base from, he said. On the flip side, individual doctors should not hesitate to negotiate and ask for a buyout clause or a carve-out leaving a particular geographic territory open.

Jerry Slaughter, executive director of the Kansas Medical Society, warned that doctors should take the contracts seriously. The medical society was not involved in the Wichita Clinic case.

"If properly constructed, [restrictive covenants] are legal and binding, so it's really about the parties going into it understanding it's a contract."