Physician Restrictive Covenants — A Delicate Balancing Act

Restrictive covenants in contracts with physicians are generally governed by state common or statutory law. Except for those states where restrictive covenants are either legislatively or judicially prohibited, the states' differing treatment of physician restrictive covenants generally revolves around the tension between a medical practice's right to protect its patient relationships, goodwill and investment in training and mentoring and a patient's right to select a physician of his or her choice and the physician's right to select a course of treatment and the location of this treatment (such as a particular hospital or medical facility) in the best interest of his or her patients.

Those states that prohibit physician practice restrictions (the minority view), such as Tennessee, Colorado, Delaware, and Massachusetts, generally find persuasive the American Medical Association Council on Ethical and Judicial Affairs, Op. E-9.02 (1998), which provides:

"Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services. The Council of Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement. Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients' choice of physician."

See, e.g., Murfreesboro Medical Clinic, P.A. v. Udom, 166 S.W.3d 674, 679-80 (Tenn. 2005); see also Valley Med. Specialists v. Farber, 982 P.2d 1277 (Ariz. 1999) (stating physician/patient relationship is "special and entitled to unique protection"); Iredell Digestive Disease Clinic v. Petrozza, 373 S.E.2d 449, 455 (N.C. App. Ct. 1988) (stating with respect to the physician/patient relationship, the court was "extremely hesitant to deny the patientconsumer any choice whatsoever"); cf. Colo.Rev.Stat. Ann. § 8–2–113(3) (banning restrictive covenants with physicians); Del.Code Ann. tit. 6, § 2707 (same); Mass. Gen. Laws Ann. ch. 112, § 12X (same).

On the other side of the spectrum (the majority view) are states such as Arkansas, Illinois, Kansas, New Jersey amd New York, where their courts have rejected a strict application of Op. E-9.02, concluding that Op. E-9.02 does not prohibit noncompetition agreements...