DOCTORS AND NON-COMPETES: CASE #2
The next important court decision analyzing the legality of a physician’s non-compete contract comes from the Circuit Court of Virginia Beach in the decision, A. J. Alexander v. Kandarp Shah, MD, PC, decided in 1995.
The plaintiff was employed by the defendant medical practice as a gastroenterologist, pursuant to a written employment contract. The parties employment contract provided that upon termination of the contract, the plaintiff agreed not to “engage in the practice of medicine” within a twenty-five mile radius of any of the employer’s offices and any of the hospitals at which the employer practiced for a period of 2.5 years. The contract also provided the plaintiff would be free to practice within the prescribed area if he paid the defendant employer “liquidated damages” in the amount of $ 225,000.00.
The court found the contract failed the first prong of the three-part test used to determine the validity of a non-compete contract. That first prong requires the agreement not be broader than is required to protect an employer’s legitimate business interest.
The court ruled that prohibiting the plaintiff from engaging in the “practice of medicine” within the proscribed geographical area went far beyond just the practice of his specialization in gastroenterology. Therefore, the prohibition was overly broad and unenforceable. The court also ruled that, since the non-compete language was unenforceable under Virgina law, it would not enforce the liquidated damages provision of the agreement.
My Take: The agreement would probably have been enforced if the agreement had prevented the plaintiff from working as a gastroenterologist within 25 miles for 2.5 years but courts are unwilling to rewrite (or “blue pencil”) an agreement executed by the parties.