Medical Employers' Freedom of Contract or Patients' Freedom of Choice?
According to the American Medical Association, most physician employment contracts include a restrictive covenant, a provision that prevents a physician from practicing in a specific geographic area, for a given period of time, after termination of employment. Restrictive Covenants in Physician Contracts, Mar. 7, 2005. The Illinois Supreme Court recently held that non-compete covenants in physician employment contracts do not violate public policy, and such covenants should be enforced so long as they are reasonable. Mohanty v. St. John Heart Clinic, No. 101251, 2006 WL 3741970 (Ill. Dec. 21, 2006) (slip op.). Upholding two such restrictive covenants, the Court aimed to protect the freedom of contract enjoyed by employers of doctors. See id. at *5, 13. However, does this come at the cost of patients' quality of care and freedom to see their physicians of choice? See id. at *18-19 (Freeman, J., concurring in part and dissenting in part).
The Covenants
The covenants at issue appeared in employment contracts between St. John Heart Clinic, a medical corporation in Chicago, and two of its cardiologist employees, Dr. Jyoti Mohanty and Dr. Raghu Ramadurai. Id. at *1. According to the contracts, after the employment relationships terminated, Dr. Ramadurai was barred for a period of three years from practicing medicine within a two-mile radius of the offices and hospitals from which the clinic operated, and Dr. Mohanty was barred for five years from practicing medicine within a five-mile radius. Id.
Procedural History
In 2003, Dr. Ramadurai and Dr. Mohanty resigned from the clinic, triggering the non-compete covenants. Id. at *2. The physicians then sued the clinic and its owner, Dr. John Monteverde, seeking a declaratory judgment that the covenants were void as against public policy and unreasonably broad. Id. The clinic and its owner counterclaimed and sought injunctive relief, arguing that the plaintiff physicians had violated enforceable covenants. Id.
The Circuit Court of Cook County entered a temporary restraining order against plaintiffs but denied defendants' request for a preliminary injunction. Id. The trial court reasoned that while the geographic limitations were "well within" acceptable ranges, defendants' subjective reasons for the temporal restrictions might have been unreasonable, and the restriction against practicing medicine was greater than necessary to protect the clinic (which specialized in cardiology). Id. at *4.
The First District of the Appellate Court of Illinois reversed, "declin[ing] [P]laintiffs' invitation to declare all restrictive covenants in medical employment contracts void in Illinois as against public policy" and holding that defendants were entitled to a preliminary injunction because the covenants were reasonable. Id.
The Illinois Supreme Court then weighed in on the issue and affirmed the appellate court's holding, adopting the "modern view" employed by "the majority of jurisdictions": restrictive covenants in physician employment contracts are not void as a matter of public policy, and the covenants in this case were reasonable and therefore enforceable. Id. at *7, 13. Justice Freeman forcefully dissented in part, criticizing the majority for giving "short shrift to the essential issue of patient care" when it concluded that the covenants did not harm the public interest. See id. at *15.
Should All Restrictive Covenants In Physician Employment Contracts Be Declared Void?
The plaintiffs in Mohanty contended that all restrictive covenants in physician employment contracts should be held void as a matter of public policy. Id. at *5. The court rejected this argument, finding that such covenants are not contrary to the state's constitution, statutes, rules, or common law, and such covenants are not manifestly injurious to the public welfare. Id. at *5-8. In the absence of public policy to the contrary, the court refused to restrict medical employers' ability to contract freely. Id. at *5, 13.
Plaintiffs relied upon an opinion of the American Medical Association that discourages restrictive covenants in physician employment contracts and finds such covenants to be "unethical" if they are unreasonably broad. Id. at *6-7. The court found, however, that the opinion of the American Medical Association was not an expression of Illinois public policy and, moreover, was "no different from the common law requirements" of Illinois, which prohibit unreasonably broad covenants. Id. The court also distinguished restrictive covenants in attorney employment contracts because they are explicitly prohibited by a state rule: Illinois Rule of Professional Conduct 5.6. Id. at *6. The court held that a blanket prohibition of this type of restrictive covenant is a decision best left to the state's legislature. Id. at *8.
In his partial concurrence, Justice Freeman seized the opportunity to discuss restrictive covenants' negative effects on patient care. See Id. at *15, 26 (Freeman, J., concurring in part and dissenting in part). According to Justice Freeman, the majority disregarded covenants' harm to the continuity of patient care, interpersonal communications between patients and their physicians, patients' preference to see their regular physician, and the long-term accumulation of knowledge about a patient. Id. at *17-18. As a result, restrictive covenants can lead to increased costs of health care, decreased quality of care, and decreased patient satisfaction. Id. at *18. Justice Freeman agreed with the majority that the issue is not for the courts to decide, but he urged the legislature to ban restrictive covenants in physician employment contracts. Id. at *23-24.
Would Enforcement Of These Covenants Cause Undue Hardship To The Departing Doctors?
Refusing to declare all restrictive covenants in physician employment contracts as void, the majority evaluated the reasonableness of these particular covenants by considering (1) whether enforcement of the covenants would cause undue hardship to the departing employees and (2) whether the restraint imposed was greater than necessary to protect the employer. Id. at *11.
The court held that the restrictions would not cause undue hardship to plaintiffs, given that they could practice medicine elsewhere in the heavily populated Chicago metropolitan area. Id. at *12. Plaintiffs argued, however, that the temporal restrictions were unfair because defendants had improper reasons for imposing them; the evidence suggested that Dr. Monteverde randomly came up with the three-year restriction on Dr. Ramadurai, and he imposed the five-year restriction because he did not trust Dr. Mohanty. Id. at *12-13. Nonetheless, the court upheld the temporal restrictions because they were objectively reasonable, regardless of defendants' subjective reasoning. Id.
In his opinion, Justice Freeman suggested that the restrictive covenants would cause undue hardship to plaintiffs for another reason – plaintiffs would be forced to violate their ethical obligations to their patients by practicing medicine miles away from their previous offices, thereby disrupting the patients' medical care. Id. at *21, 25.
Were These Restraints Greater Than Necessary To Protect The Heart Clinic?
Finally, the court assessed whether the restraints imposed by the covenants were greater than necessary to protect defendants. The court first described the businesses interests of defendants that warranted protection: defendants had spent over ten years establishing a successful cardiology clinic, and they had trained plaintiffs and helped them develop a referral base. Id. at *12-13. Additionally, because cardiology is "inextricably intertwined" with the general practice of medicine, and defendants treated patients for conditions unrelated to cardiology, it was fair to restrict plaintiffs from the general "practice of medicine" for a specified time in a specified area. Id. The court found, moreover, that the restrictive covenants did not unnecessarily harm the public because there were a sufficient number of cardiologists to meet patient needs in the vicinity of the clinic. Id. at *13. The majority held that the restrictive covenants in plaintiffs' employment contracts were enforceable, and defendants were entitled to a preliminary injunction. Id.
In his partial dissent, Justice Freeman reasoned that the training and other benefits that defendants had provided to plaintiffs arguably benefited defendants as well; for example, enhanced goodwill and expertise "do not just disappear when the physician departs…" Id. at *21. Justice Freeman attacked the majority's "dated view" that the public interest would be served as long as enough cardiologists existed in the area. He stated that patients are not "widgets--nondescript objects that anyone has the right to service." See Id. at *25. Justice Freeman argued that the case should be remanded to the trial court for fact-finding on the hardship to the public caused by enforcement of these covenants. Id. at *27.
Looking Forward
In Mohanty, both the majority and the dissent agreed that it is up to the legislature to decide whether restrictive covenants in physician employment contracts are harmful to the public. Will the Illinois General Assembly accept the court's invitation to examine and resolve this important issue?
