Virgina Supreme Court Refuses To Enforce Physician Non-Compete Agreement

The Supreme Court of Virginia, in the case of Parikh v. Family Care Center, Inc., 641 S.E.2d 98, 2007, entered final judgment against a lay corporation that sought to enforce a non-compete agreement against a former physician-employee.

At the time the defendant physician originally entered into the non-compete with the corporation, it was a professional corporation owned by another licensed physician. When the physician-owner subsequently died in an automobile accident, his wife, who was not a licensed physician, took over ownership of the corporation. The Court ruled that once a lay person took over ownership of the corporation, it no longer qualified as a professional corporation, and therefore could not engage in the practice of medicine through the employment of licensed physicians. Since the corporation was, as a result, now engaged in the unauthorized practice of medicine, the Court concluded the corporation had no legitimate business interest to protect by enforcing the non-compete agreement against its former physician employee.

Many believe that the prohibition on the corporate practice of medicine is an antiquated doctrine in light of the realities of today’s healthcare delivery system. Because of that, many non-physician entities (such as hospitals, urgent care centers, ambulatory care centers and clinics) have come to believe there is little risk employing physicians to provide professional services on behalf of such entities. The Parikh case is the latest in a series of state supreme court decisions over the last several years that have refused to enforce non-compete agreements between lay entities and their former physician-employees. In light of these cases, a lay entity entering into an employment agreement with a physician should carefully consider the enforceability of such an agreement (including, but not limited to, any non-competition clause) when evaluating the risks and benefits of entering into such an arrangement, and should take care to structure any such arrangement so as to comply with the medical licensure requirements of their state.