Restrictive Covenants Among Physicians and Veterinarians
Medical doctors and veterinarians need to know that the courts will enforce non-compete agreements only if it is reasonable and serves legitimate business reasons. If the language of the non-compete terms are not reasonable, the courts may “blue pencil” the offending terms.
“Blue penciling” means that the courts will modify or alter contract terms that are unreasonable to something more reasonable.
For example, if a non-compete agreement prohibited an employee from opening his or her own practice within 500 miles from where the hospital is located, that would be unreasonable. The court might modify that from 500 miles to 20 miles, which would be more reasonable.
As a general rule, non-compete agreements must be reasonable as to duration, geographical scope, and the type of activity being restricted. As part of its analysis of whether the non-compete agreement is reasonable, the court may also determine whether the terms harm the public interest. Naturally, the courts will need to balance between harm to the public interest and the employer’s interest in protecting proprietary information and trade secrets.
One New Jersey case worth mentioning is Community Hospital Group, Inc. v. More, 869 A.2d 884 (NJ Sup. Ct. 2005). In this case, Dr. More was a neurosurgeon who signed a non-compete agreement with a not-for-profit teaching hospital. The terms of the non-compete agreement prohibited Dr. More from practicing neurology within a 30-mile radius of the hospital for 2 years. When Dr. More joined a neurology practice 13 miles away, the not-for-profit hospital sued Dr. More to enforce the non-compete agreement. Ultimately, the New Jersey Supreme Court held that the 30-mile radius was too expansive since there was a shortage of neurosurgeons in the area.
Here, the NJ Supreme Court was concerned about the harm to the public if the 30-mile radius was enforced.
To my knowledge, there is no New Jersey case on point pertaining to non-compete agreements between veterinarians and animal hospitals, but there is no reason to believe that it would not be enforceable provided that the terms were reasonable.
There have been a handful of non-compete cases involving veterinarians in other states, however. One recent case is Heiderich v. Florida Equine Veterinary Services, Inc., a Florida case decided in March 30, 2012. Although not binding on the New Jersey courts, it is a clear example that veterinarians should not expect different treatment when it comes to non-compete agreements.
Regardless of how reasonable the terms of the non-compete agreement appears to the lay person, there is a possibility that the distance restriction may be too expansive. If there is a shortage of medical doctors or veterinarians in a particular area, a court may modify the distance restriction to a number that is more reasonable and does not harm the public interest. This can be good news for medical doctors and veterinarians who want to practice somewhere else, but within the restricted area set forth in the non-compete agreement.
It is absolutely essential that medical doctors and veterinarians contact an attorney for a consultation to evaluate the terms of their non-compete agreement.