ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Tuesday, May 9, 2006

Restrictive Covenants for Physicians

Aaa_44 Restrictive employee covenants are a troublesome issue in contract law.  The problems only get worse when the employees being restricted are physicians.  In Physician Restrictive Covenants: The Neglect of the Incompetent Patients’ Interests, forthcoming in the Wake Forest Law Review, Betsy Malloy (Cincinnati) argues that courts are giving short shrift to patients when they assess such deals.  Here's the abstract:

The article examines how courts in different jurisdictions have addressed restrictive employment covenants for physicians and proposes a new approach drawn from the third-party beneficiary analysis in contract law.  Physicians hired into existing practices often must sign substantial non-compete agreements.  In evaluating the enforceability of any restrictive covenant, courts consider, among other factors, the agreement’s effect on the public.  Surprisingly, the vast majority of jurisdictions treat the “public interest” analysis vis-a-vis physician restrictive covenants no differently than any other commercial restrictive covenant; this approach neglects the impact that such agreements can have on a physician’s existing patients.  Although at first glance physician restrictive covenants may seem like a somewhat insular area of the law, it is an area that is reflective of some of the primary forces acting on the perceived health care “crisis” in this country -- the often contradictory pressures of serving patients and running a profitable business.  This article suggests courts should consider a physician’s incumbent patients as quasi third-party beneficiaries to the physician’s employment agreement when deciding whether to enforce the physician restrictive covenant.  This more nuanced approach will allow courts a finer balance of the business interests of physicians against the often weighty public interest in protecting physicians’ relationships with their patients.

[Frank Snyder]

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