Non-Compete Agreements for Virginia Doctors

Virginia Physician Employment Agreements: “Non-Compete” Provisions

Over the last decade, regional health care providers have expanded the use of non-compete agreements in physician contracts. Such provisions are frequently litigated in Virginia courts.

Are non-competes appropriate for physicians in Virginia?

The American Medical Association states such contracts “disrupt continuity of care, and potentially deprive the public of medical services.” (AMA statement E -9.02). They go on to state in the same paper, 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.”

Although we would agree with the AMA, Virginia courts use a different analysis.

A Virginia judge will read each contract to determine if (1) it is reasonable in protecting legitimate business interests of the employer; (2) not unduly burdensome on employee’s right to earn a living and (3) against public policy. In determining whether an agreement is reasonable they will look at the time limitation and geographic scope.

So are non-compete agreements enforceable against physicians in Virginia? Yes and no. Carefully, narrowly written agreements are enforceable. Agreements that expire or are too broad will not be enforced. Further, sale of business cases are treated differently.

Here is a sample of Virginia court decisions on physician non-compete contracts. Please remember, each case is treated differently as each contract is unique.

Greenbrier Obstetrics and Gynecology v. Zenette Moore Leao, MD (Va. 2009)

Dr. Leao entered into a 3 year employment contract with Greenbrier, a professional corporation providing obstetric and gynecological services in southeast Virginia.

After serving three years, Dr. Leao had to leave for personal reasons. Upon her departure, she asked the local circuit court to rule whether her non-compete agreement was reasonable and therefore enforceable.

The non-compete stated “for a period of 2 years following termination of employment…employee shall not, directly or indirectly, own, manage, participate in, be employed by, or maintain any interest in any medical practice which practices obstetrical or gynecological medicine within a 20 mile radius of the current office of the employer.”

The Court held that the non-compete could not be enforced against Dr. Leao because the contract also stated “ the agreement may be terminated by either employer or employee without cause and without any further obligations upon 60 days advance written notice.” The Court read the phrase “without further obligations,” written by the practice, to mean that if the physician gave proper notice, she had no further obligations including the contractual obligation to obey the non-compete.

Although Greenbrier was decided based on the specific language in the contract, and will not likely effect many other physician contracts, the case does remind us that each contract will be considered individually, and, even if you signed a non-compete, it does not automatically mean it is binding.

Denton Weiss v. E.V.M.S Academic Physicians and Surgeons Health Services Foundation (Norfolk Cir. Ct. 2005)

Dr. Weiss and EVMS entered into an employment agreement which contained a non-compete provision. Problems arose in the employer-employee relationship and Dr. Weiss asserted that EVMS had failed to meet its obligations under the employment/non-competition agreement.

Dr. Weiss, while still employed by EVMS, filed suit against his employer asserting what is called the “First Breach Defense” in his attempt to void the non-compete provision of his contract. This defense basically asserts that if an employer first breaches its obligations and duties to the employee under the employment agreement, then the employer is not permitted to hold the employee to their obligations under the agreement. This is also sometimes referred to as the “clean hands defense” to non-compete contracts.

Great strategy by Dr. Weiss and his legal team…only one problem. The employment/non-competition agreement contained the following language: “The existence of any claim or cause of action of the Clinician [Dr. Weiss] against EVMS and the Foundation, whether predicated on this Contract or not, shall not constitute a defense to the enforcement by EVMS and the Foundation of the restrictions, covenants and agreements contained herein.”

Basically, EVMS took away the first breach or cleans hands defense by inserting language in the employment/non-compete agreement allowing them to do so. The court found that inserting this “no defense clause” into the contract was not unconscionable or in violation of public policy.

As we have told clients before, each contract is unique. Please discuss the terms of your agreement with an attorney experienced in these matters.

Carilion Healthcare v. William Ball, MD

Carilion, Southwest Virginia’s largest healthcare system, and Dr. Ball entered into a Physician Employment Agreement (“PEA”) and a Noncompetition Agreement in 1996. The PEA set forth the details of the employment relationship while the Noncompetition Agreement addressed the purchase of the assets of Ball’s medical practice and the terms of the covenant not to compete.

Ball remained employed with Carilion until the PEA expired on September 30, 2000. Carilion made an offer of continued employment to Dr. Ball, but he declined the offer and began practicing medicine independently of Carilion.

The Noncompetition Agreement provided that Dr. Ball could not compete with Carilion for the provision of primary care medical services within 25 miles of the primary office for a 2 year period following any termination of employment.

The Court found the restriction to be reasonable and prevented Dr. Ball from continuing his solo practice. Although Virginia courts do not favor non-compete agreements, they are more often upheld in sale of business cases.

Clara Belle Wheeler, MD v. Fredericksburg Orthopedic Associates and Mid-Atlantic Health Alliance (Fredericksburg Cir. Ct. 1998)

Dr. Wheeler (an orthopedic surgeon) entered into a written employment agreement for a 12 month period.

The agreement required Dr. Wheeler to become “board certified” in the field of orthopedic surgery. The agreement also contained a non-compete provision which prohibited Dr. Wheeler from practicing medicine within a 35 mile radius of the City of Fredericksburg for a period of 18 months if she left her employment.

After 12 months, the employment agreement was not renewed but all kept working under the same terms and conditions. After failing her second attempt at passing her orthopedic boards, Dr. Wheeler was terminated by the practice. She then filed suit against the practice requesting the court to find her non-compete unenforceable.

Dr. Wheeler’s sub-specialty was in the field of orthopaedic microsurgery of the hand. There was no other physician in the Fredericksburg, Virginia, area who was engaged in that type of practice. When emergencies occurred which required a physician with Dr. Wheeler’s sub-specialty in the Fredericksburg area and she was unavailable, those patients were transported to either Washington, D.C., Richmond, or Charlottesville, Virginia, cities more than fifty miles from Fredericksburg.

The practice attempted to enjoin (prevent) Dr. Wheeler from engaging in practice within the non-compete area. The court refused to prevent her practice for two main reasons: (1) the medical practice fired Dr. Wheeler. In doing so, the practice purposefully ended her services, and discontinued receiving profit from her work. Lost profits is not enough to prove damages from breach of an agreement. The damages would be the same had she retired, left the area, or started a competing practice. (2) The public would suffer a harm if Dr. Wheeler was not allowed to practice her sub-speciality in Fredericksburg as patients would have to travel substantial distances to find a similarly skilled doctor.

Apparently, the case settled (presumably upon favorable terms for Dr. Wheeler) before any final rulings by the court.

The case reminds us that physicians, unlike other professions, are promoting public welfare. If there is ever a public policy reason to breach a non-compete, the unique healthcare skills of a physician may fall into that category.

Drs. Blum Newman, Blackstock & Associates, Optometrists v. Timothy Jessee, MD (Roanoke City Cir. Ct. 1997)

This case arises from physicians suing physicians, their ex-partners.

Dr. Jessee (the defendant), an optometrist resigned his employment of nine years with plaintiff’s professional corporation and began practicing at a local Wal-Mart store. Plaintiff filed suit requesting injunctive relief and damages, claiming Dr. Jessee was in violation of his non-competition agreement.

The agreement restricted Dr. Jessee from practicing optometry within a 25-mile radius of the plaintiff’s nine offices for three years. As written, the non-compete agreement prevented Dr. Jessee from being employed as an optometrist in the Roanoke Valley for a period of 3 years. Dr. Jessee argued the contract was overbroad, ambiguous, punitive, and unenforceable.

The trial court, applying the “three-prong test” found the agreement to be reasonable and enforceable.  The most interesting part of the case dealt with the issue of “liquidated” damages. The non-compete contract provided that Dr. Jessee would be indebted to the plaintiff corporation for a specific sum of money if he violated the non-compete (the opinion never discloses the amount of the liquidated damages set out in the contract).

The court held however, that if the plaintiffs could measure actual damages, the liquidated damages portion of the contract is an unenforceable penalty clause.

Shenandoah Chiropractic, Inc. v. Scott Berman (Warren County Cir. Ct. 1996)

Shenandoah Chiropractic was a Virginia corporation engaged in the practice of chiropractic medicine in Front Royal, Virginia.

In December of 1994, Shenandoah Chiropractic and the defendant (Berman, a chiropractor) entered into an employment contract. The relevant portions of the contract provided as follows: “In the event that the employee terminates the employment agreement, for a period of 1 year from the date of such termination that the employee shall not engage in the business of the evaluation and non-surgical treatment of musculoskeletal disorders, the rehabilitation of musculoskeletal disorders, nor act in aid of such business, within a 40 mile radius of the center of Front Royal, Virginia, or any other clinic owned or operated by employer…”

The twist with this case arose out of the fact the employment contract, by it terms, expired on June 4, 1996. The parties negotiated before and after the expiration date but were unable to agree to the terms of a new employment agreement. After the negotiations failed, Berman left Shenandoah Chiropractic and opened an independent chiropractic office in Front Royal, VA.

Shenandoah Chiropractic then filed suit to enjoin Berman from operating his office.

The court denied Shenandoah Chiropractic’s request for an injunction, finding the employment agreement “expired” on June 4, 1996 and the non-compete limitations expired with the agreement. The court noted that Shenandoah Chiropractic could have written the employment agreement such that the one year non-compete would also run from the expiration of the contract but failed to do so.

A. J. Alexander v. Kandarp Shah, MD, PC (Virginia Beach Cir. Ct. 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.

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 Virginia law, it would not enforce the liquidated damages provision of the agreement.

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.

Joseph Statkus, MD v. Loudoun Anesthesia Associates, LLC. (Loudon County Cir. Ct. 1994)

In 1994, Dr. Statkus joined with four other physicians to form a company known as Loudoun Anesthesia Associates (LAA). LAA was formed for the purpose of providing specialized and exclusive medical services to the Loudoun Hospital Center (LHC) and to the Loudoun Health Services (LHS).

Subsequent to the formation of the company, the physician members (licensed anesthesiologists) executed an Operating Agreement which contained the following non-compete provision:

  • “That for a period of 1 year following withdrawal from the Company, whether voluntary or involuntary and whether with or without cause, that Member will not directly or indirectly engage in a business similar to that conducted by the Company or in any other business competitive with the Company, but only so far as such competitive business is located in or actively solicits business in Loudoun County, Virginia … The Members hereof expressly agree that the terms, duration, and geographic extent of this Covenant Not to Compete are reasonable.”

The court found the non-compete language to be invalid and unenforceable because it represented an unreasonable restraint on the practice of anesthesiology and pain management by Dr. Statkus.

Why? Because the court found that LAA was the sole provider (pursuant to a separate contract) of anesthesia services to LHC and LHS. Also, pursuant to that separate contract, LHC and LHS could only retain the doctors at LAA for anesthesia services. Therefore, the non-compete between LAA and Dr. Statkus was unnecessary, and he could not work for LHC or LHS because he was no longer a part of LAA.

Clinch Valley Physicians, Inc. v. Luis Garcia, MD, (Va., 1992)

Clinch Valley Physicians, Inc. (CVP) was a professional corporation whose shareholders were physicians.

Each physician had a contract with CVP which provided, among other things, as follows: (1) The contract term was for one year but could be automatically renewed. (2) The Board of Directors of CVP could terminate the contract for justifiable cause. (3) Upon termination of the agreement, for any reasons whatsoever, the physician could not, for a period of 3 years, engage in the practice of medicine or surgery in a radius of 25 miles of Richlands.

Dr. Garcia decided to leave CVP and his contract was not renewed. He then filed suit against CVP asserting the non-compete language did not apply to him since his employment agreement with CVP had lapsed and he was not “terminated.”

The Virginia Supreme Court agreed with Dr. Garcia’s position and held the non-compete provision was not enforceable against him. The Court reasoned that, in reading the agreement in its entirety, the non-compete provision applied only to physicians who were “terminated” as set forth in the agreement.

The importance of this decision is that it is a great example of how the court looks very closely at the precise language of the agreement and, if it is unclear or ambiguous, such flaws will be held against the employer who drafted the agreement. The Court noted that CVP could have drafted the agreement so that it would have applied in situations where the physician chose not to renew his contract.

Is your hospital asking you to sign a non-compete?

We often review these agreements and advise clients on their force and meaning.

Are you leaving for a different provider?

We can help by advising behind the scene or by representing you in litigation.