“Normally, non-compete agreements are disfavored by the courts, so you start with that assumption,” said Jack Beal, a healthcare attorney with Polsinelli Shughart in Kansas City who was not involved in the Tri-City litigation. “Are they controversial? Probably. But are they common? Yes.”
Pediatrix's parent company, the Sunrise, Fla.-based Mednax, has told its investors that it's not clear whether the non-compete agreements in place for nearly all of the company's 2,100 doctors are ultimately legal.
“Although we believe that the non-competition covenants of our affiliated physicians are reasonable in scope and duration and therefore enforceable under applicable state laws, we cannot predict whether a court or arbitration panel would enforce these covenants,” the company said in its annual earnings report for 2012 filed with the Securities and Exchange Commission.
Late last month, an arbitrator with the American Arbitration Association ruled that Pediatrix's non-compete agreement with neonatologist Dr. Hamid Movahhedian was not valid in California.
Movahhedian was described by the arbitrator as being well-liked at the hospital but dissatisfied with running Tri-City's Neonatal Intensive Care Unit as contractor through Pediatrix. So in 2009 when the hospital got a new CEO who didn't like outside management companies, Movahhedian got a chance to quit Pediatrix and join the hospital as a direct employee running the NICU.
However, Movahhedian's contract forbade him from working at any hospital within 20 miles of a former work site for two years. He did it anyway, and went to work at Tri-City. Soon after Pedatrix sued Movahhedian for violating the contract and Tri-City for interfering with the agreement, among other claims.
On July 25, Arbitrator Burton Katz wrote that under California contract law, salaried employees have wide latitude to change jobs.
The law “makes it crystal clear that public policy favors the freedom of an employee (and indeed an employer) to compete with competitors in a free market place,” Katz wrote. “That any unreasonable constraints placed upon [a salaried employee) that disallows the freedom to accept other employment, offered even by a dreaded competitor of the current employer, is prohibited.”
Katz also said Tri-City was not liable for allegations that it caused the physician to leave the job and violate the contract, because Movahhedian was preparing to leave Pediatrix anyway.
Physicians' non-compete agreements became a source of tension in another case recently, when the Federal Trade Commission filed its first-ever formal enforcement action regarding a hospital seeking to directly employ physicians.
The FTC accused Renown Health of Reno, Nev., of creating an illegal monopoly over cardiology services in its local market when it purchased the two major physician groups that provided the services, giving Renown control of 88% of the market. To resolve the dispute, Renown agreed to release up to 10 cardiologists from non-compete agreements that forbade them from moving to competitors within 50 miles for two years.
Ten doctors took advantage and left Renown within months of the settlement with the FTC, hospital officials said.
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