Seyfarth Synopsis. A physician in a group of doctors primarily serving residents of nursing homes signed a non-compete covenant and agreed to be enjoined if he breached. Subsequently, he resigned and commenced competition. The doctors’ group sued him and moved for entry of an injunction. Despite the absence of any Rhode Island statute or judicial decision directly in point, a Providence, R.I. Superior Court judge asserted that a “public policy” of that state protects patients’ right to choose their own doctor, and so the motion for an injunction was denied. Medicine & Long Term Care Associates, LLC v. Khurshid, Civil Action No. PC-2015-0458 (Mar. 29, 2016) (Silverstein, J.).

The judge’s reasoning

Judge Silverstein found that the doctors’ group “alleged facts and presented evidence which otherwise might entitle it to injunctive relief.” However, the judge said that Rhode Island courts hold that injunctions which “would injure members of the public” need not be entered. 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.” Although Rhode Island has no statute like the one in Massachusetts, he ruled that Rhode Island’s public interest is similar to that of its neighbor state. He added that the doctors’ group could seek compensatory damages for its injuries if it proves that the physician’s breach caused substantial monetary losses to the group.

Significance of the case

  1. Many states do not share Massachusetts’ view of public policy. According to a Tennessee Supreme Court opinion (Murfreesboro Med. Clinic, P.A. v. Udom, 166 S.W.3d 674, 680 (2005)), a majority of states that have taken a position “continue to apply a reasonableness standard in evaluating [the enforceability of] 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. In several other states, in the past few years bills providing that physician non-compete covenants are unenforceable have been introduced in Connecticut, Hawaii, Missouri, and Washington State, among others, but have failed to pass. So, at the present time, non-compete agreements signed by doctors are not invalid in most states.
  2. 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.
  3. Typical sources of public policy. Declarations of public policy usually are embodied in legislation and in decisions of a state’s appellate judges interpreting such legislation. In the absence of laws or direct precedents, trial court jurists such as Judge Silverstein rarely are the source of public policy. However, other judges may follow suit. Groups of doctors who ask members to sign non-compete agreements should be alert to moves by judges (or by legislative bodies) in their states to invalidate those agreements.

Additional information regarding this case can be found here in “Trading Secrets,” Seyfarth Shaw’s trade secrets law blog.