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Doctors' Rights Protected by Non-Compete Ruling

While medical clinics long have protected patient bases with physician non-compete agreements, a Arizona Supreme Court ruling favors doctors' rights by limiting how broadly such agreements may be written. [Valley Medical Specialists v. Farber, 982 P. 2d 1277 (1999).]

Non-Compete Agreements

A non-compete agreements prohibit doctors who leave the practice from treating patients within a certain distance from the clinic for a specific amount of time.

But the state's high court determined one agreement was too broad because it prohibited a pulmonologist from practicing any form of medicine within five miles of a clinic and for three years after his departure. The court stated that because of the physician/patient relationship and a patient's right to see one's chosen doctor, non-compete agreements must be narrowly worded. For this reason, the court ruled the wording in an employment contract between Dr. Steven Farber and Valley Medical Specialists was unreasonable.

The result is sending medical clinics to attorney's offices for document redrafts.

"Some people will need to pull in their horns on the scope and duration of these agreements," said Robert Milligan, an attorney at Phoenix law firm Gallagher & Kennedy PA. He added a non-compete area of three to five miles and a duration of one to two years should be reasonable, depending on the physician's specialty.

Arizona Supreme Court Justice Stanley Feldman also noted Valley Medical's agreement said the court would enforce the document although it actually did not have the power to do so or to alter the wording.

Blue-Pencil Rule

The so called "blue-pencil rule" has allowed trial courts to eliminate or modify portions of documents a court deemed unreasonable if the document contained a severability clause. But the Supreme Court determined that rewriting such covenants would no be fair to employees.

It decided courts could ignore, or "blue pencil," portions of documents but not add terms or rewrite provisions. [See also Varsity Gold, Inc. v. Porzio, 202 Ariz. 355 (2002).]

"What used to happen and what will now happen is that a physician will sign a contract that says he will not compete/practice in a non-compete zone," Milligan said. "Then the non-compete zone will be defined as in effect for a specific time period with a clause that says 'The time frame will be three years, unless a court finds that overboard. Then the zone will be enforced for a period of 18 months.' It gives a cascade effect that sets up an alternative time period in case a court deems the agreement overboard."

Milligan said he believes most agreements drafted in the past 10 years don't contain that provision and medical groups will need to rewrite agreements if such language is not already there. Most of Milligan's clients are medical groups, but for his physician clients he is advising they sign potential agreements right away and "play dumb."

"For people in the process of negotiating a non-compete agreement, it's best to just play dumb and sign an excessively broad agreement that's probably going to be invalid anyway," he said.

Reprinted with permission of The Business Journal.

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