KANSAS SUPREME COURT AFFIRMS ENFORCEABILITY OF NONCOMPETITION AGREEMENT IN PHYSICIAN EMPLOYMENT
 

 

Somewhat lost in the excitement over the school finance case handed down by the Kansas Supreme Court on June 3, 2005 was a separate opinion that will be of considerable significance to any hospital or health care provider that employs physicians. The case, Idbeis v. Wichita Surgical Specialists, (www.kscourts.org/kscases/supct/2005/20050603/91442.htm) upheld restrictive covenants in physician employment contracts even as applied to subspecialists, in this case thoracic, cardiothoracic and cardiovascular surgeons practicing in Sedgwick County.

 

The employment agreement for Dr. Idbeis, who is board certified in general and thoracic surgery, prohibited the physician from involvement in any business engaged in the practice of medicine or surgery within 75 miles of Wichita for a period of two years after termination of employment. It also provided a so-called liquidated damages provision that in effect allowed Dr. Idbeis to purchase the right to continue to practice by making five annual payments in an amount equal to 20% of his total taxable compensation for the 12-month period immediately preceding termination of employment. The restrictive covenant contained in the employment agreements for three other physicians who were also involved in the lawsuit did not contain the liquidated damages provision and defined the geographic restriction in slightly different terms.

 

The general legal test applicable to a restrictive covenant is that it is valid if it is reasonable and not adverse to the public welfare. In a typical business or commercial context, this usually means that the time during which the restriction will be in force and the geographic area to which it is applicable must be reasonable and consistent with the legitimate business purposes of the employer. Rarely is the public welfare seriously impacted by such provisions. However, the application of a restrictive covenant to a physician, particularly a subspecialist, may be viewed as having a significant impact on the public welfare, especially if the effect of the provision may be to substantially reduce the ability of the public to access a key medical specialty. Some courts in other jurisdictions have viewed this as a crucial consideration and have refused to enforce restrictive covenants on that basis. The trial court noted that the application of the restrictive covenant would cause Wichita to lose one of the few surgeons performing pediatric neonatal-cardiovascular surgery, beating heart surgery, and the Ross procedure, and further noted that all of these procedures were of significance to the public welfare. The trial court then found that the restrictive covenants were injurious to the public welfare because they did not contain a liquidated damage buyout that would allow three of the physicians the same option provided to Dr. Idbeis – to in effect purchase a continuing right to practice medicine. The Kansas Supreme Court concluded that this interpretation by the trial court was incorrect in light of its prior holdings in other cases. The Kansas Supreme Court further concluded that the restrictive covenant in each of the four employment contracts was enforceable according to its terms, meaning that three of the surgeons would not have the right to pay liquidated damages in lieu of ceasing the practice of medicine in Wichita and its surrounding area.

 

While the language of the opinion of the Kansas Supreme Court may leave a slight possibility that a particular restrictive covenant in a physician employment contract would be held unenforceable as injurious to the public welfare, the likelihood of this occurring is slim. The decision also puts to rest any argument that physician employment contracts containing a restrictive covenant must also contain a buyout provision.

 
 

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