June 18, 2018

Understanding Non-Compete Agreements

By Wythe Michael

 

We are often asked to draft non-competition and non-solicitation agreements on behalf of physician practice groups. We also review non-competition and non-solicitation agreements on behalf of physicians and other health care providers. Many physicians have a belief that these types of restrictions are invalid or even illegal. However, in Virginia, unlike many other states, physician non-compete and non-solicitation agreements are enforceable if the restrictions are reasonable in scope, necessary to protect an employer’s legitimate business interests and are not against public policy. Below is a short summary of how Virginia treats non-compete and non-solicitation agreements.

Virginia courts typically focus on the following three factors to determine whether a non-compete will be enforced:

What is the duration of the restriction?
Generally a restriction lasting more than 2 years will be deemed unreasonable.  However, it is also possible that a shorter time period will be deemed unreasonable.  

What is the geographic range of the restriction? 
The geographic range must closely match the geographic area where the practice group draws its patients.  For example, a physician group in Chesapeake likely would not be able to restrict its physicians from working in Newport News unless the group could show that a large number of its patients travel from Newport News to Chesapeake.     

What is the scope and extent of the activity being restricted?  
The practice group must have a legitimate business interest in prohibiting the type of activity restricted. If the type of activity restricted is overly broad, the court will not enforce the non-compete.  For example, a cardiology practice group generally would be able to restrict its cardiologists from practicing cardiology but would not be able to prohibit its cardiologists from practicing family medicine for a family practice group.

Typically courts will analyze all three factors at the same time and give equal weight to each factor. Each non-compete agreement will be judged based on its own merits including the type of practice, the physician’s specialty and other underlying facts.

Finally, physician practice groups need to keep in mind that Virginia courts will not modify or change a defective non-compete.  If a court finds that a non-compete is unenforceable, the court will not attempt to modify the language to create a reasonable restriction. Instead, the entire non-compete will be thrown out. Therefore, when drafting non-compete agreements, most Virginia lawyers are conservative in drafting the restrictions. It is much safer to err on the side of a more limited non-compete than be in a position of defending a borderline non-compete that could be completely disallowed.

Wythe Michael, an attorney with Goodman Allen & Donnelly, focuses his practice on the representation of healthcare providers.  Often acting as an outside general counsel, Wythe provides practical solutions to legal issues by working with practice groups and individual practitioners to understand and implement their business strategy. goodmanallen.com