A physician signed a non-compete covenant, agreed to be enjoined if he breached, and allegedly did breach. But when his former employer asked a Providence, Rhode Island Superior Court judge to enter an injunction, he refused to prevent patients from being treated by a doctor of their own choosing. Medicine & Long Term Care Associates, LLC v. Khurshid, Civil Action No. PC-2015-0458 (Mar. 29, 2016) (Silverstein, J.).

Summary of the case. MLTC is a Rhode Island provider of health care services principally to nursing home residents. When Dr. Khurshid went to work for MLTC, he signed an employment agreement with a non-competition covenant. Along with reasonable temporal and geographic limitations, it included (a) Dr. Khurshid’s acknowledgement that a violation would cause irreparable harm to MLTC, and (b) his consent to entry of an injunction in the event of a breach. Several years later, he left MLTC but continued treating its clients. The company sued him and sought, among other prayers, entry of an order preventing him from competing with MLTC. Judge Silverstein ruled, however, that the requested order would violate Rhode Island public policy.

The judge’s reasoning. Judge Silverstein found that MLTC “alleged facts and presented evidence which otherwise might entitle it to injunctive relief.” However, the judge said that case law in Rhode Island provides that courts may refuse to enter injunctions which “would injure members of the public.” Further, he observed that Massachusetts has a statute precluding the entry of an injunction against doctors who sign restrictive covenants, and that courts in that state have described the statute as supportive of the “strong public interest in allowing patients to consult the physician of their choice.”

Rhode Island has no such statute, but Judge Silverstein ruled that the state’s public interest is similar to the one in Massachusetts. He noted that in 2000 a Rhode Island Superior Court judge held that enforcement of a non-compete clause signed by a veterinarian would not impose “an undue hardship on the pets of Rhode Island.” Judge Silverstein added that MLTC could “seek legal redress for its injuries” if it proved its allegation that Dr. Khurshid’s breach caused substantial monetary losses to the company.

Takeaways. The judge found that, even though the subject has not previously been addressed by Rhode Island’s courts or its legislature, he would not enter an injunction against physicians who sign non-compete covenants. He added that MLTC could seek compensatory damages from Dr. Khurshid. Might the risk of facing a large monetary judgment for violation of a non-compete discourage a breach and, thereby, lead to almost the same result as an injunction?

Issues that Judge Silverstein might have mentioned, but did not, include the following:

Courts in a majority of states probably would not agree with Khurshid. According to the Supreme Court of Tennessee in Murfreesboro Med. Clinic, P.A. v. Udom, 166 S.W.3d 674, 680 (2005), most states “continue to apply a reasonableness standard in evaluating non-compete agreements between physicians, similar to the evaluation of covenants in commercial contexts.” Only a few states — Colorado (Colo. Rev. Stat. 8-2-113), Delaware (6 Del. Code § 2707), and New Mexico (N. Mex.. Stat. 24-11.2) — have enacted laws similar to the Massachusetts statute.

Several state legislatures recently have rejected Massachusetts-type statutes. Bills providing that physician non-compete covenants are unenforceable have been introduced in the last year or two in Connecticut, Hawaii, Missouri, and Washington State, among others, but have failed to pass.

The AMA discourages, but permits, doctors to sign non-competes. Section E-902 of the American Medical Association’s Code of Ethics provides that doctors “should not enter into [restrictive] covenants that . . . do not make reasonable accommodation for patients’ choice of physician” (emphasis added). Section E-902 does not prohibit such covenants.

MLTC had a protectable interest in an injunction. The non-compete covenant provided that irreparable damage would result to MLTC in the event of a breach. In other words, the parties agreed that compensatory relief alone would be inadequate. Further, the public policy seemingly would have been honored if the court had permitted Dr. Khurshid to continue seeing only those patients he previously treated.

The Khurshid decision suggests a number of questions. For example, would Rhode Island’s public interest allow patients to choose healthcare providers who executed a non-compete with a prior employer but who do not have a medical degree? Does the state’s public policy protect freedom of choice with respect to learned professionals other than healthcare providers, such as an investment advisor who signed a non-compete with a previous employer? Perhaps future cases will provide answers.