Virginia Medical and Professional Non-Compete Agreements
Under Virginia law, a non-competition agreement will be strictly construed against employers including medical and other professional practices, and will be found to be enforceable if the agreement as a whole is found to be reasonable. Courts require non-competition agreements to be as narrowly tailored as possible to protect the vital interests of the employer while still leaving opportunity for a former employee to pursue a career. A non-competition agreement will be enforced if (1) the covenant is narrowly tailored to protect the employer’s legitimate business interest, (2) the covenant is not unduly burdensome on the employee’s ability to earn a living, and (3) the covenant is reasonable from a public policy standpoint. The employer bears the burden of proving these factors. In determining whether an employer has met its burden of proving these factors, the court looks at the function of the restriction, the geographical scope of the restriction, and the duration of the restraint. The court analyzes these aspects together, rather than as separate inquiries. Although non-competition agreements are enforceable in Virginia, they are considered disfavored restraints on trade. Due to this, the employer bears the burden of proving any ambiguities in the agreement. Further, courts will construe any ambiguities in the agreement in the employee’s favor. If a provision in a non-competition agreement is capable of more than one reasonable interpretation, a court will find it to be ambiguous. If a provision is unambiguous, it is read according to its plain meaning.
Virginia courts have determined that non-competition agreements that are overly broad pertaining to the types of activities prohibited are unenforceable. Overly broad provisions are not effective in protecting an employer’s business interests because they encompass more aspects than necessary to protect that interest. “Covenants that are ambiguous, that prevent an employee from doing work unrelated to the work that they previously did for the employer, or that go beyond the employer’s legitimate interest are unenforceable.”
Each non-competition agreement must be evaluated on its own merits, considering the particular circumstance of the individual case. When a non-competition agreement is breached, the injured party is entitled to be put in the same position as he would have been in if the contract had been performed. An employer has two available remedies when its non-competition agreement is breached: injunctive relief and compensatory damages. Injunctive relief is an extraordinary remedy and may only be granted upon the employer showing irreparable harm and the lack of any adequate remedy. Compensatory damages include lost profits. Lost profits do not need to be precisely calculated. Instead, it can be calculated on the track record of profits or with a reasonable basis.
In Clinch Valley Physicians, Inc., the employee physician signed a contract with a provision stating, “Upon termination of this agreement, for any reasons whatsoever, the Physician shall not, for a period of three (3) years thereafter, engage in the practice of medicine or surgery in a radius of twenty-five (25) miles of Richlands.” The plaintiff employee physician allowed his contract to lapse because he was not satisfied with his employment. The plaintiff then filed a complaint for declaratory judgment to determine whether the noncompetition provision applied to him if he were to begin working as a physician in Richlands. The trial court determined, and the state Supreme Court agreed, that the non-competition provision applied only to an employee’s termination for cause, thus not applying to the plaintiff, whose contract simply lapsed. The court strictly construed the non-competition agreement to apply only when the specific instance stated in the provision occurred.
In Parikh, a licensed physician, Nipun Parikh, entered into an employment agreement with Family Care Center. At the date of execution of the employment agreement, Family Care Center was a professional corporation lead by Dennis Burns, M.D. The employment agreement stated that Family Care Center was presently engaged in the practice of Medicine in Lynchburg, Virginia. The agreement contained a non-competition clause that stated upon termination for any reason, the employee agrees for a period of three years “to pay employer ten thousand dollars each month employee is engaged in a competing practice of General Practice, Family Medicine Ambulatory Care or General Internal Medicine within a radius of twenty miles measured from the offices of the Employer.” In 2003, Dennis Burns died and his widow became the sole owner of the company. His widow, however, was not licensed to practice medicine. Parikh soon after terminated his employment and obtained a job as a physician with another care center one mile away from Family Care Center, which engaged in the same practices. The circuit court enforced the non-competition clause against Parikh. Parikh appealed the judgment arguing that the Family Care Center cannot engage in the practice of medicine in Virginia because it did not have a license to practice medicine in the jurisdiction (due to the change of ownership). The Supreme Court stated that the question in this case was whether the employer had a legitimate business interest in enforcing the non-competition clause. The Court reviewed Code § 54.1-2929, which states that no person shall hold himself out as a qualified medical practitioner without having a valid license from the Board of Medicine. The Court strictly construed the language of the employment agreement, which specifically stated that the employer was presently engaged in the practice of medicine, and determined that this no longer existed. The Court determined the employer could not enforce the non-competition clause because it could not engage in competing medical practice with Parikh, who was a licensed physician.
In Greenbrier Obstetrics & Gynecology, P.C., Leao, a physician, entered into an employment contract with Greenbrier. The agreement provided: “This Agreement may be terminated by either EMPLOYEE or EMPLOYER without cause and without any further obligations upon sixty (60) days advance written notice.” The employment agreement also contained a covenant not to compete that stated, “for a period of two (2) years following termination of employment… EMPLOYEE shall not, directly or indirectly, own, manage, participate in, be employed by, or maintain any interest in any medical practice which practices obstetrical or gynecological medicine within a twenty (20) mile radius of the current office of EMPLOYER.” Leao terminated his employment by giving sixty days notice. Leao then sough declaratory judgment that the non-competition agreement was void. The Virginia Supreme Court determined that there was an ambiguity between the provisions of the agreement due to the language “without any further obligation” and then the obligation not to compete. The Court construed the ambiguity in favor of the employee and held Leao’s sixty days notice terminated the entire agreement including the non-competition clause.
In Fame, a doctor certified as an allergist and immunologist executed an employment agreement with an employer. The agreement included a non-competition provision provided that upon his termination, the doctor would be prohibited from competing with the employer for two years in a specific geographic area. It further stated that should the doctor become employed by a competitor to treat allergies or immunological disorders, the doctor is prohibited from being connected in any way to the competitor who does similar work as the employer. After the employer terminated the doctor, he sought declaratory judgment that he should not be bound by the non-competition clause. The circuit court found that the provision was unenforceable. The provision was capable of more than one meaning: that the doctor was prohibited from treating any patients from the listed areas regardless of where his practice is, or that the doctor is prohibited from treating patients while he is physically in the listed areas. The court found the reasonable interpretation of the provision was overly burdensome and thus unenforceable because it would require the doctor to screen each patient to determine if they had any connections to the listed areas. The court also found that the provision was not narrowly tailored to protect the employer’s business interests because it prevented the doctor from managing, operating, or controlling a competing professional practice. The court stated that “[a] non-competition restraint is too broad when it encompasses activities in which the employee was not engaged on behalf of the employer.” This restriction was unreasonable because it overly restricted the former employee’s ability to find future employment and would thus severely limit his ability to earn a living.
In physician non-competition agreements, it is important that the employer is engaged in the kind of practice he wishes to protect his interests in. As was determined in Parikh, for physicians, an employer must have a license in the specific practice in order to enforce a non-competition agreement against a former employee attempting to engage in that practice. If no such license exists, there is no interest that the non-competition agreement can protect from a former employer who has a valid license. There is no competition between a former employee and employer when the employer is not licensed to engage in the practice.
Virginia courts are known to construe employment agreements along with their non-competition clauses as literally as possible. When there is room for different interpretations of a provision, it will be construed in favor of the employee. To eliminate this risk, an employer should tell his attorney exactly what he wants his contract to state both in the employment contract itself, as well as the non-competition clause, and the attorney will draft it in a way to ensure that the provisions will be enforced together. This process will limit the possibility of contractual provisions contradicting each other and avoid the issues presented in Clinch Valley Physicians, Inc. and Greenbrier Obstetrics & Gynecology, P.C.
A physician employer must be careful not to draft a non-competition agreement that is overly burdensome because it will be struck down. Employers should take note of Fame when limiting an employee’s ability to compete. Drafting requirements such as having the former employee screen every single patient to make sure there is no connection to the provisions in the signed non-competition agreement is unrealistic and will be considered overly burdensome. In drafting restrictions, an employer and his attorney must contemplate whether the limitations they establish are reasonable otherwise they run the risk of the provision being unenforceable.
Further, a physician employer must be careful not to draft a non-competition agreement that is overly broad. As was stated in Fame, an overly broad restriction is not narrowly tailored to protect an employer’s business interests. In order to remain in the realm of enforceability, an employer should limit the employee restrictions to specific activities that the employee performed while employed with the employer. The Fame court states that a non-competition agreement cannot encompass activities that the employee did not engage in under the employer’s employment. To restrict activities outside of the employee’s performance is not considered to be narrowly tailored to the employer’s business interests and may prevent the employee from earning a living elsewhere. Restrictive language such as “any medical position” will likely be determined to be overbroad and unenforceable because it is too encompassing.