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by W. Scott Rose
Over the last several years, the law in Tennessee regarding physician noncompetition agreements has been changing. Notably, the Tennessee Supreme Court's 2005 decision Murfreesboro Medical Clinic, PA v. Udom, 166 S.W.3d 674 (Tenn. 2005), came close to completely outlawing these agreements. However, on January 1, 2008, a new statute went into effect that largely, but not completely, restored Tennessee law regarding physician noncompetition agreements. This article describes the changes in the law and offers a flow chart for determining whether a particular noncompetition agreement may be enforceable.
Murfreesboro Medical Clinic, PA v. Udom
In Udom, the Tennessee Supreme Court held that, with the exception of certain physician noncompetition agreements authorized by statute, physician noncompetition agreements are void and unenforceable. The physician noncompetition agreements specifically authorized by statute are those when the employer is a hospital or an affiliate of a hospital, see Tenn. Code Ann. § 63-6-204(f) (which creates limitations on such noncompetition agreements), or when the employer is a faculty practice plan, see Tenn. Code Ann. § 63-6-204(g) (which creates a "safe harbor" for such noncompetition agreements meeting specified time and geographic limitations). With those two exceptions, as of June 2005, physician noncompetition agreements were unenforceable in Tennessee.
To a majority of the Supreme Court, its holding in Udom was a logical extension of Spiegel v. Thomas, Mann & Smith, P.C., 811 S.W.2d 528 (Tenn. 1991), which held that attorney noncompetition agreements were void and unenforceable. In the Udom opinion, the Supreme Court began its analysis by observing that the American Bar Association considers noncompetition agreements among attorneys to be unethical, and the American Medical Association's ethical guidelines discourage noncompetition agreements as contrary to the public interest, see AMA's Code of Medical Ethics §§ E-9.02, E-9.06. Udom, 166 S.W.3d at 679. From there, the Supreme Court's list of similarities between the two professions continued:
- both professions involve a public interest generally not present in commercial contexts;
- both entail a duty on the part of practitioners to make their services available to the public;
- both are marked by a relationship between the professional and client that goes well beyond merely providing goods or services, as the relationship is "consensual, highly fiduciary and peculiarly dependant on the patient's or client's trust and confidence in the physician consulted or attorney retained"; and
- both professions involve the disclosure of sensitive, private, and confidential information from the client to the professional.
Udom, 166 S.W. 3d at 683.
The General Assembly Enacts Tenn. Code Ann. § 63-1-148 to Overrule Udom
The new statute overrules Udom almost entirely. Specifically, Tenn. Code Ann. § 63-1-148 declares that a healthcare provider noncompetition agreement "shall be deemed reasonable" under certain specified circumstances. First, healthcare provider noncompetition agreements must be in writing. See Tenn. Code Ann. § 63-1-148(a)(1)(A). Second, the noncompetition agreement must contain a time limitation of no longer than two years.
See Tenn. Code Ann. § 63-1-148(a)(1)(B). Third, the maximum allowable geographic limitation is a ten-mile radius from the place of employment or the county of the place of employment, whichever is greater. See Tenn. Code Ann. § 63-1-148(a)(1)(B)(i). As an alternative to a geographic restriction, healthcare provider noncompetition agreements can prohibit the healthcare provider from practicing at any facility at which the employer provided services during the healthcare provider's employment. See Tenn. Code Ann. § 63-1-148(a)(1)(B)(ii).
The new law applies not just to physicians, but to "healthcare providers," which include podiatrists, chiropractors, dentists, optometrists, and psychologists. See Tenn. Code Ann. § 63-1-148(c). Additionally, the new statute prohibits the enforcement of noncompetition agreements against healthcare providers who have worked for the healthcare provider for six years or more. See Tenn. Code Ann. § 63-1-148(a)(2). Noncompetition agreements as a component of the sale of a medical practice are not subject to the statute's time and geographic limitations, and the time and geographic limitations agreed to by the parties in such agreements are presumed reasonable. See Tenn. Code Ann. § 63-1-148(b).
The one aspect of Udom not overruled by Tenn. Code Ann. § 63-1-148 concerns physicians who practice emergency medicine and radiology. The new statute carves out an exception for those physicians, see Tenn. Code Ann. § 63-1-148(d), so for them, Udom's prohibition on the enforcement of physician noncompetition agreements remains in effect. Moreover, Tenn. Code Ann. § 63-6-204(f)-(g) does not save any radiology or emergency medicine noncompetition agreements because (1) hospitals and hospital affiliates may not employ radiologists and emergency physicians, see Tenn. Code Ann. § 63-6-204(f)(6)(a), and (2) Tenn. Code Ann. § 63-6-204's authorization of physician noncompetition agreements for faculty practice plans does not apply to radiologists or emergency medicine physicians, see Tenn. Code Ann. § 63-6-204(g)(5). Consequently, the Udom ban on physician noncompetition agreements remains in effect for all radiologists and emergency medicine physicians.
How to Advise Healthcare Employers after Tenn. Code Ann. § 63-1-148
The combination of the two statutes and Udom's residual application to radiologists and emergency physicians creates a complex scheme. Legal practitioners should run through the following flow chart:
(1) If the physician is a radiologist or emergency physician,
then neither statute applies, see Tenn. Code Ann.
§ 63-1-148(d), Tenn. Code Ann. § 63-6-204(f)(6)(a), and Tenn.
Code Ann. § 63-6-204(g)(5), and therefore, Udom
remains good law and prohibits the enforcement of all
noncompetition agreements.
(2) The new statute, Tenn. Code Ann. § 63-1-148, applies
to all other healthcare provider noncompetition agreements.
(3) Additionally, if the employer is a hospital, hospital
affiliate, or facility practice plan, and if the physician
does not specialize in ophthalmology, pathology, or
anesthesiology, then, in addition to Tenn. Code Ann.
§ 63-1-148, the noncompetition agreement must comply
with Tenn. Code Ann. § 63-6-204(f)-(g) as well.
(4) If the noncompetition agreement is a component of
the sale of a medical practice, the terms negotiated by
the parties are subject to a rebuttable presumption of
reasonableness. See Tenn. Code Ann. § 63-1-148(b).
Furthermore, it remains to be seen whether courts will apply the modification or "blue pencil" rule to healthcare provider noncompetition agreements that exceed the new statute's time and geographical limitations. Accordingly, healthcare employers should have their standard noncompetition agreements reviewed for compliance with the new statute.
Finally, the new statute does not indicate whether it applies only to noncompetition agreements signed on or after January 1, 2008, or whether it revives noncompetition agreements signed before January 1, 2008, and rendered unenforceable by Udom. But "the presumption against retroactive legislation is deeply rooted in our jurisprudence, and embodies a legal doctrine centuries older than our Republic." Landgraf v. USI Film Products, 511 U.S. 244, 265 (1994). Therefore, since Tenn. Code Ann. § 63-1-148 does not contain an express retroactivity provision, it likely does not resuscitate noncompetition agreements laid to rest by Udom. Consequently, even if previously signed noncompetition agreements otherwise comply with the new statute, healthcare employers should consider obtaining new agreements. |
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