Monday, July 11, 2005
Under a rather narrow set of facts, the Tennessee State Supreme Court has issued a ruling invalidating non-compete clauses between physicians and physician practices. Holding that such agreements are against public policy, the court joins several states in ruling that physician non-competes violate public policy. (I think Colorado and Massachusetts are two other states with similar rulings.)
The court also ruled against buyout clauses - essentially liquidated damages. I have to disagree with this part of the ruling. It seems that this would be a valid way for the physician practice to recoup some of its investment in recruiting, training and retention expenses even though this is a hard number to quantify. (I have seen liquidated damages clauses that included line items for office supply expenses. That's a stretch when a physician group tries to recoup its costs for paperclips.) Extreme examples notwithstanding, ruling against liquitated damages is somewhat intrusive on the freedom to contract.
Anyway - here is a link to the case. - Jim Tomaszewski, Univ Cincinnati 3L