Recent Jurisprudence Suggests Caution in Drafting Physician Non-Compete Agreements

Louisiana jurisprudence has recognized the enforceability of non-compete agreements against physicians. In Regional Urology, L.L.C. v. Price, 966 So.2d 1087 (La. App. 2 Cir 2007) a group practice sought to enforce a non-compete agreement against a physician, who in turn alleged that public policy should invalidate the agreement. The physician argued that enforcement of the agreement would limit the freedom of patients to choose their treating physician. The Second Circuit Court of Appeal in Shreveport, however, discounted this argument and enforced the agreement against the physician. In doing so, the Court provided:

Lastly, Dr. Price argues that we should nullify the non-competition and non-solicitation agreement between the members of Regional Urology for being against public policy. This we declined to do. The considerations raised by Dr. Price are compelling, particularly concerning the freedom patients should have to obtain treatment from a physician of their own choosing. However, these considerations were apparent when Dr. Price and the other physicians of Regional Urology signed the amendment and put their own material concerns above that of patient choice. We find nothing in Louisiana’s public policy that would require us to nullify the agreement at issue. The policy concerns raised by Dr. Price are, as observed by the trial court, a matter for the legislature to address.

The validity of non-compete agreements in Louisiana is controlled by a single statutory provision and its judicial interpretations. La. R.S. 23:921, Louisiana's controlling statute, begins with a general prohibition against any agreement whereby anyone is restrained from exercising a lawful profession, trade or business, " unless one of the narrow exceptions to the general prohibition contained therein has been satisfied." It provides:

Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this section, shall be null and void.

This opening paragraph of La. R.S. 23:921 reflects Louisiana's strong public policy against these agreements. The exceptions to the general prohibition, for the most part, are based upon relationships. They include the Employer/Employee relationship, the sale of the goodwill of the business, the dissolution of a partnership, the Franchisor/Franchisee relationship, the Employer/Computer Employee relationship, the Corporation/Shareholder relationship, the Partner/Partnership relationship, without consideration of any possible dissolution, and the Limited Liability Company/Member relationship.

Because these agreements are in derogation of the common right, Louisiana jurisprudence has strictly construed these exceptions to the general prohibition. To fall within these exceptions, most Louisiana courts have required a valid non-compete agreement to list the area of prohibition by parishes, municipalities or parts thereof, together with a term of no longer than two (2) years from the date of termination of the relationship.

While not specifically contained within the statute, some Louisiana courts have also required that a valid non-compete agreement define the business accurately in which the individual is prohibited from competing. Other Louisiana courts deny the need for this additional non-statutory-based requirement. If the business is defined within the agreement, however, the definition must be narrow and accurate.

A recent decision by the First Circuit Court of Appeal in Paradigm Health System, L.L.C. v. Faust, 218 So.2d 1068 (La. App. 1 Cir. 2017), affects the drafting and enforceability of non-compete agreements with physicians in Louisiana. This case suggests caution in drafting physician non-compete agreements. As discussed below, if you want your agreement to be enforceable, you must use precise language compliant with Louisiana law.

In the recently decided case of Paradigm Health System, supra, Dr. Faust signed an employment agreement with Paradigm containing a two (2) year non-compete agreement. The area of prohibition included several Louisiana parishes. The agreement did not contain a definition of the business of Paradigm, which this particular Circuit court in Louisiana does not require. While the agreement appears to contain all the requirements of a valid non-compete agreement under Louisiana law, the Court of Appeal upheld the lower court’s decision invalidating the non-compete agreement. Why?

Rather than tracking the language of La. R.S. 23:921 by prohibiting Dr. Faust “from carrying on or engaging in a business similar to that of the employer”, the agreement, instead, prohibited Dr. Faust from “engaging in the practice of medicine or rendering any medical services for any business similar to those provided by Paradigm.” Although Dr. Faust was hired in the field of anesthesia and interventional pain management, according to his employment agreement, Dr. Faust was prohibited from “engaging in the practice of medicine”. The court, therefore, found the non-competition clause to be overly broad and unenforceable.

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