ROBERT M. CEARLEY, Jr.

Though often rejected by the courts as an unreasonable restraint of trade when terms are too restrictive, or the duration too long, or the territory too large, non-compete agreements remain a staple of employment agreements involving medical professionals that warrant careful examination. 

Non-compete agreements, also known as covenants not to compete, have been a source of litigation for over 500 years. Though not favored by the law, because to some degree, they are a restraint of trade, these covenants are commonly found in employment contracts. They land in court when the employer sues to enforce the covenant seeking an award of damages or, more commonly, an injunction prohibiting violation of the terms of the covenant.

Today, it is well established that reasonable post-employment restrictive covenants are not an unreasonable restraint of trade. And, outside the medical profession, these agreements are routinely upheld and enforced if they: (1) are supported by consideration when signed; (2) protect a legitimate business interest of the employer;  (3) are reasonable in scope without being unduly burdensome on the former employee’s right to earn a living.

Consideration

Contracts generally must be supported by consideration. In the employment context, when the agreement is made before beginning employment, the employment itself serves as the consideration. When a non-compete agreement is signed after beginning employment, something else of value generally must be given in exchange for the covenant.

Protection of Legitimate Business Interests

Where a non-compete agreement grows out of an employment relationship, courts have found them enforceable only where the employer provided special training or made available trade secrets, confidential business information, or customer lists,  and then only where one could use the information to gain unfair competitive advantage.

Reasonableness In Duration and Scope

To be enforceable a non-compete agreement must impose no greater restriction than is necessary to protect the legitimate business interest of the employer and must be reasonable both as to the duration of the restriction and the territory it covers. 

Non-compete Agreements Involving Arkansas Physicians

Arkansas has followed the majority of jurisdictions in this country by requiring that a party challenging the validity of a non-compete agreement show that it is unreasonable and contrary to public policy. Whether the restraint is reasonable is determined by considering whether it is only broad enough to afford a fair protection to the interest of the employer, and not so large as to interfere with the interests of the public. If the agreement restricts activities that are not necessary to protect the legitimate business interest the agreement is intended to protect, the agreement is unreasonable. The determination is made on a case-by-case basis. Non-compete agreements in employment contracts are subject to stricter scrutiny than those connected with the sale of a business. And non-compete agreements involving physicians, and by inference, other skilled medical professionals, are subject to even greater scrutiny because of their impact on the public.  

Arkansas appellate courts have dealt with these issues on only two occasions; each time refusing to enforce non-compete agreements in physician employment contracts.

In Duffner v. Alberty, 19 Ark. App. 137 (1986) the Arkansas Court of Appeals 

found an orthopedic surgeon’s promise not to practice medicine within 30 miles of the offices of his former employer for a period of one year unenforeceable and an unreasonable restraint of trade. The court held that under the circumstances, “all other considerations must give way where matters of public policy are involved,” and that the covenant at issue constituted “an undue interference with the interests of the public right of availability of the orthopedic surgeon it prefers to use. . .” 

Likewise, in Jaraki v. Cardiology Associates, 75 Ark. App. 198 (2001), the Arkansas Court of Appeals held a non-compete agreement between a cardiologist and his cardiology group void and unenforceable where it prohibited him from practicing medicine within 75 miles of the group’s principal office for a period of two years. Dr. Jaraki had completed a fellowship in electrophysiology, and he was the only cardiologist in the city of Jonesboro with such training. The employment contract at issue provided for employment for a two year period, unless terminated by either party upon 90 days’ written notice. Eight months into the contract Dr. Jaraki gave written notice that he would resign in 90 days. The group cut off his access to clinic records and sued to enforce the non-compete agreement. The lower court issued an order enforcing the terms of the covenant and enjoining Dr. Jaraki from practicing medicine within a 75 mile radius of Jonesboro for two years. 

Dr. Jaraki appealed and the Court of Appeals began its analysis by acknowledging the earlier holding in Duffner, “that it is contrary to public policy to unduly restrict the public’s right of access to the physicians of their choice.” It then framed the issue as whether the covenant in question “constitutes an undue interference with the interests of the public right of availability of the cardiologist it prefers to use, and if the covenant’s enforcement would result in an unreasonable restraint of trade.” Rejecting the findings of the lower court, the Court of Appeals found that the cardiology group had no legitimate business interest in need of protection, that it was not entitled to protection from “ordinary competition,” that the geographic area covered by the covenant was too broad and the covenant was, therefore, void.

Though it is not possible to predict with certainty whether a specific non-compete agreement contained in a physician’s employment contract would be enforced today, any consideration of these issues would have to include the physician’s ethical and legal obligations to provide continuity of care and the patient’s right to select a physician of his/her choice as each is expressed in ethical codes, statutes, and regulations. Entities employing physicians continue to include covenants not to compete in their contracts, and any physician considering entering into such an agreement would be well advised to seek advice from counsel familiar with the law before enforceability becomes an issue.

Robert M. Cearley, Jr., has been a trial lawyer for more than 40 years and is certified in civil trial advocacy by the National Board of Trial Advocates.  He is a past president of the Arkansas Bar Association  &  Member of International Academy Of Trial Lawyers and is listed in Martindale Hubbell’s Bar Registry of Preeminent Lawyers and The Best Lawyers in America. He can be reached at bob@cearleylawfirm.com.