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Employer can’t enforce non-compete vs. doctor

medicineA health care provider could not enforce a non-competition agreement with a physician who left to work elsewhere, a Superior Court judge in Rhode Island has held.

The plaintiff, Medicine and Long Term Care Associates LLC of Cranston, or MLTC, sought a preliminary injunction to enforce its non-compete against a former employee, Dr. Shahzad Khurshid of North Kingstown.

The plaintiff, which provides medical services to nursing homes and retirement centers, accused the defendant doctor of “diverting and usurping business opportunities” after his departure in violation of an exclusivity and non-competition clause in his agreement with MLTC.

The plaintiff pointed to a 2000 Superior Court ruling, which upheld a veterinarian’s two-year covenant not to compete, in arguing that its status as a health care provider did not prevent it from relying on a voluntary contractual agreement to restrict the doctor’s practice.

The plaintiff also said the two-year non-compete and non-solicitation contract clause in question, which applied within a nine-mile radius of its headquarters, conformed with the reasonableness standard the court applied in the case about the veterinarian.

Judge Michael A. Silverstein rejected those arguments and held that public policy reasons weighed against the injunction even though, unlike Massachusetts, Rhode Island has not yet enacted a statute barring non-competition agreements between doctors and health care companies.

“[T]his Court believes that the strong public interest in allowing individuals to retain health care service providers of their choice ‘outweighs any professional benefits derived from a restrictive covenant,’” he wrote.

But Silverstein allowed MLTC to pursue other aspects of the suit, including its argument that it stands to lose tens of thousands of dollars due to the doctor’s alleged wrongful conduct.

The seven-page decision is Medicine and Long Term Care Associates, LLC v. Khurshid.

Competing concerns

MLTC’s lawyer, Anthony J. Gianfrancesco, called it “a fiction” that there is a strong public interest against limiting any individual’s choice of doctor.

“In theory it sounds good; in reality, patients don’t pick their doctors. The health care providers and facilities make those decisions, not the patients,” Gianfrancesco said.

The Providence lawyer said companies such as his client need non-compete agreements for the same reason any business does: to protect their investment. MLTC invests time and money in training its doctors, so if a physician leaves and takes a chunk of the practice, that harms the company, he said.

According to court filings, several nursing home facilities cut ties with MLTC shortly after the defendant left because he told them he could not work in the same building as the plaintiff.

Gianfrancesco said he expects the judge’s denial of the injunction to have an “immediate impact” on non-compete agreements between doctors and health care employers.

“It’s changing Rhode Island law and adopting the Massachusetts law on that area. I think it’s going to have significant impact if it stands,” Gianfrancesco said.

He said he also expects health care entities to be more careful going forward with respect to how they structure contracts with doctors. He added that the ruling could be applicable to attorneys and other professionals as well.

Kathleen M. Hagerty of Warwick represented the defendant. She said she and her client were pleased the ruling emphasized the underlying right of patients to pick their own doctors.

“In my view, and in the view of my client, this is about more than money. I think the court acknowledged that,” Hagerty said.

Courts around the country are issuing disparate rulings on whether physicians should be excluded from non-compete agreements, said professor Michael J. Yelnosky, dean of Roger Williams University School of Law in Rhode Island.

“People are feeling, [including] judges and others, that there’s the practice of medicine and the business of medicine,” Yelnosky said.

Judges who focus on changes in the health care industry are more likely to conclude that the rules that apply regarding restrictive covenants in other businesses should also apply to physicians. In some jurisdictions, courts have found such agreements enforceable subject to certain court-imposed limitations, such as duration, scope and the type of activity that is prohibited, Yelnosky said.

Michael Gamboli, an employment lawyer in Providence, said the reference to MLTC’s damages claim at the end of the ruling means the court was not disallowing all contractual business arrangements between health care entities and doctor employees that could have an impact on patients.

“If it wanted to slam the door shut it would have said any restrictive agreement that would prevent individuals from choosing their own physician is not enforceable,” Gamboli said.

Instead, that language at the end of the ruling “hinted at the real solution,” which is a contractual agreement that calls for a departing doctor to make a payment to take over part of the practice, he said.

Such an agreement would acknowledge that many patients are likely to follow the doctor —common for other types of professionals, including stockbrokers, accountants and insurance agents, he said.

Two-year exclusivity, non-compete clause

The defendant’s May 2009 agreement with MLTC called for him to see assigned patients at nursing homes. It set his schedule and compensation and outlined the terms of a two-year exclusivity and non-competition clause.

In addition to barring the defendant from setting up a practice within nine miles of MLTC’s headquarters after he left, the contract said he could not solicit or try to solicit MLTC’s employees, contractors, referral sources or patients.

The clause also said he could not influence any of those parties — nor suppliers or vendors — to stop doing business with MLTC. The contract went on to say MLTC could seek injunctive relief to enforce the covenants in the agreement’s confidentiality and non-solicitation sections.

In late December 2014, the defendant informed MLTC that he planned to end his employment agreement with the company. In early January, the John Clarke Retirement Center in Middletown informed MLTC that it was terminating its contract with the company, and other nursing home centers quickly followed suit.

The company’s February 2014 suit claimed the doctor violated his agreement and noted that the John Clark Center had retained his services. The plaintiff’s claims included unfair competition, breach of fiduciary duty, tortious interference with advantageous relations, and tortious interference with prospective contractual relations.

The plaintiff sought a declaratory judgment on those claims and an injunction to stop the defendant from using the business relationships and confidential information he gained during his time at MLTC. The company sought punitive damages and exemplary damages under the state’s Trade Secrets Act, G.L. 1956 §6-41-4.

Strong public interest

Silverstein juxtaposed the Superior Court’s 2000 ruling about the veterinarian, Block v. Vetcor of Warwick, LLC, with a 1994 Rhode Island Supreme Court case that discussed the “imperative need” of patients to trust their doctors, State v. Almonte.

In Block, the judge held that enforcing the non-compete clause would not cause “undue hardship” on pets in the state because animals “are such agreeable friends — they ask no questions, they pass no criticisms.”

Almonte emphasized that “people are encouraged to confide in their health care providers.” The case concerned a subpoena of an arson defendant’s medical records because the state believed he confessed his crime to hospital staff while receiving treatment for burns.

Silverstein went on to cite a Massachusetts statute, G.L.c. 112, §12X, that bars enforcement of restrictive covenants against doctors, and Massachusetts court rulings that referred to the strong public interest in enabling patient choice.

That public interest is paramount, “even in the absence of a Rhode Island statute similar to the above-mentioned Massachusetts law,” Silverstein wrote.

Some state lawmakers hope the time is ripe to change the law. Two bills currently pending — S.2578 in the Senate, and H.7586 in the House — would bar restrictive covenants in doctors’ employment agreements.

Sen. Gayle L. Goldin said she and Rep. Edith A. Ajello introduced the bills at the request of a doctor constituent.

“You want to be able to maintain that relationship with your physician regardless of who employs them or where they’re working,” Goldin said.

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