I have a client who unfortunately might be headed towards litigation with a physician shareholder who left the group recently. The litigation issue revolves around the covenant not to compete provision in the shareholder agreement. The current agreement did not state a time limit for the covenant to expire but did state that if a physician left the group, then he would owe the group as compensation one times the physician’s prior year’s salary.
In attempt to get a temporary injuction preventing the departed physician from starting his new medical practice that obviously would compete against my client’s medical practice, the judge ruled two ways:
1. The covenant was unenforceable under state law because the contract did not give a time limit for when the covenant would expire;
2. However, the physician did enter in to a “contract” stating that he would indeed have to pay one times the prior year’s salary to the group as compensation. In other words, a contract is a contract in the eyes of the law.
In my practice, I see many times where physician contracts are never reviewed periodically. This must be done. So make sure physician employment agreements, shareholder agreements, partnership agreements, etc. are reviewed at least once every two years to make sure they are in compliance with state laws and are financially feasable. Remember that it is often the financial terms of the agreements (ex. buy outs of owners) that give rise to most of the disputes and litigation.