Cases and Comments on Contracts

Covenants Not To Compete / True Stories

by Robert V. West, MD JD FAAEM

The last few months my former group has been caught in a CMG squeeze play. In an effort to pressure “the Hospital” to renew their management contract and maintain their cash flow, “CMG 1” has been threatening the ED doctors with monetary penalties under a non-compete clause found in our contracts if we continue to work at the Hospital for “CMG 2.”
The clause at issue here read, “during the terms of the agreement and for a period of 2 years after its expiration, physicians shall not work at the Hospital. Furthermore, in the event of a violation of this covenant, the physician shall immediately pay the ‘CMG 1’ $55, 000.” In other words, if the ED doctor wants to continue to work at the Hospital then he has to pay $55,000 to earn this right. Furthermore we all got letters from “CMG 1” reminding us of our contractual obligations not to work there for two years after they left. All my colleagues were disturbed about whether they can still work at the Hospital after “CMG 2” takes over the contract.

The law in most states says that a covenant not to compete is enforceable if the employer has a legitimate interest to protect; for example, a trade secret or other confidential information that it had provided to the employee in exchange for the employment contract. Furthermore, any limitations it imposes as to time, geographic area, and/or liquidated damages (such as those at issue here), must be no greater than that needed to protect the business interests of the employer. There are a few States where covenants not to compete are illegal.

However the answer to these annoyances in most of our situations lies in the fact that there are no trade secrets and no confidences that are divulged to the ordinary pit docs like. In our scenario, we worked for “CMG 1” who was out of state and had never even paid an on-site visit nor personally met or interviewed any of us. Hence there was no way we had any confidential information. What was a problem was that the “CMG 1” was withholding our final pay checks for a period of 30 days as leverage and influence, while “CMG 2” was recruiting to back-fill our former positions. I decided to take a month off and find a new job, but everybody got paid and those that wanted to work for “CMG 2” with new and harsher restrictive covenants are back on the schedule.