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that either physician could terminate the partnership on 90 days' notice. The partnership agreement also contained the following provision: In the event of a dissolution of the co-partnership herein created, it is agreed by Dr. H. M. Rutledge, one of the partners, that he will not engage in the practice of the profession of medicine in the town of Lumberton, Robeson County, North Carolina, or within 100 miles of said town of Lumberton, Robeson County, North Carolina, for a period of five years from the date of said dissolution. In January, 1940, the parmership was dissolved and Dr. Rutledge immediately opened an office for the practice of medicine in Lumberton, limiting his practice to the treatment of diseases of the eyes, ears, nose and throat. Both of the partners had limited their practice to these specialties. Dr. Beam immediately brought suit against Dr. Rutledge, and Dr. Beam obtained a preliminary injunction prohibiting Dr. Rutledge from engaging in the practice of medicine in Lumberton or within 100 miles of that city pending the trial of the case. Dr. Rutledge appealed to the North Carolina Supreme Court. The Supreme Court upheld the validity of the covenant. The court stated that the test to be applied in determining the reasonableness of a restriction is whether the restraint provides fair protection for the interest of the party who seeks the enforcement, but is not so broad as to interfere with the rights of the public. The nature of this test, the courts observed, is such that reasonableness must be determined on a case-by-case basis. Since the Beam case, the courts in North Carolina have decided a great number of cases and developed a considerable body of case law governing the interpretation and enforcement of restrictive covenants. In determining whether a particular covenant is reasonable and therefore enforceable, the courts have applied the following rules. Physicians who are considering the use of a restrictive covenant clause or who are reviewing their existing contracts should consider the following points: employment and before the physician begins work. Any deviation from that procedure, however, may result in a court finding that the covenant was given without valuable consideration and is, therefore, unenforceable. For instance, courts have invalidated covenants that were entered into after the employment relationship had commenced. While covenants may be enforceable when new "value" (such as a raise in salary) is given after employment commences, this practice is risky. Thus, the only safe way of meeting the consideration requirement for physicians is to have the employment contract with the restrictive covenant executed in advance of the commencement of work by the physician and at the time the employment agreement is created. 4 The covenant must be reasonable with regard to the scope of activity prohibited. In order to be reasonable and therefore enforceable, a covenant must be drafted so that it only resuicts the physician from a reasonable scope of activity. Cases in North Carolina such as the Beam case have upheld restrictions for physicians from practicing "medicine," even though they are specialists. Although there are no decisions in North Carolina which find that a narrower area is required in a particular specialty area, it is possible that as the law develops, in certain circumstances a broad prohibition against the practice of "medicine" would be considered unreasonably broad by a court. Thus, it is prudent for single specialty groups to consider restricting activity only within that specialty. 5 The covenant must be reasonable as to the time of the resu-iction. As noted above, in Beam, the Supreme Court of North Carolina approved a five-year period of restriction as reasonable. Recent cases outside of the medical area have indicated that the court has narrowed the time period which it considers to be a reasonable restriction. Time periods that extend beyond a two- or three-year period following the termination of the agreement may be increasingly suspect as being too long to protect the legitimate interest of the medical group. 1 The covenant must be in writing and signed by the employee. Oral restrictive covenants are not enforceable. 2 The covenant must be ancillary to the protection of the legitimate business interests of the medical group. Examples of a legitimate business interest are the patient relationships and name recognition developed through the investment of the group's time, efforts and resources. The covenant must be limited to protecting this interest. 3 The covenant must be supported by valuable consideration. An individual physician cannot merely agree to refrain from practice. This promise will not be enforceable, because it lacks the legal concept known as "consideration," which means "value." In the medical contract context, this legally sufficient consideration generally exists when the physician enters into an employment contract in connection with accepting the offer of 6 The covenant must be reasonable as to the territory in which the activity is prohibited. In the Beam decision, the Supreme Court of North Carolina found reasonable a territory of 100 miles. Since that time, however, courts have increasingly narrowed the permissible geographic territory to be restricted. The exact extent of the territory to be restricted, however, should be based upon the business activity of the medical group. If the medical group draws patients from a county or series of counties, a restriction based upon those economic realities is likely to be enforceable. On the other hand, if the scope of the covenant extends beyond the drawing area of the medical group, it is likely to be deemed unenforceable. A recent case from the North Carolina Court of Appeals graphically illustrates this concept. In Beasley v. Banks, 90 N.C. App. 458 (1988), the North Carolina Court of Appeals considered a restrictive covenant between an optician and an optometrist. In Beasley, the defen- 632 NChU / November 1989, Volume 50, Number 11
Object Description
Rating | |
Fixed Title * | NCHH-17: North Carolina Medical Journal [1940-Present] |
Document Title | North Carolina Medical Journal [1940-Present] |
Subject Topical Other | Public Health -- Periodicals.; Physicians -- North Carolina -- Directory.; Societies, Medical -- North Carolina -- Periodicals. |
Description | Includes Transactions of the Society, -1960; 1961- , Transactions issued separately, bound in.; Includes Transactions of the auxiliary to the Medical Society of the State of North Carolina and Proceedings of the North Carolina Public Health Association. Official organ of the Medical Society of the State of North Carolina, 1940-May 1972; of the North Carolina Medical Society, June 1972-. Vols. for 1940-May 1972 published by the Medical Society of the State of North Carolina; June 1972- by the North Carolina Medical Society. |
Contributor | Medical Society of the State of North Carolina. Transactions.; Medical Society of the State of North Carolina.; North Carolina Medical Society.; North Carolina Medical Society. Transactions.; North Carolina Public Health Association. Proceedings. |
Publisher | [Winston-Salem] : North Carolina Medical Society [etc.], 1940- |
Repository | University of North Carolina at Chapel Hill. Health Sciences Library. |
Host | University of North Carolina at Chapel Hill |
Date | 1989 |
Identifier | NCHH-17-050 |
Form General | Periodicals |
Language | English |
Rights | This item is part of the North Carolina History of Health Digital Collection. Some materials in the Collection are protected by U.S. copyright law. This item is presented by the Health Sciences Library of the University of North Carolina at Chapel Hill for research and educational purposes. It may not be republished or distributed without permission of the Health Sciences Library. |
Digital Collection | North Carolina History of Health Digital Collection |
Sponsor | The North Carolina History of Health Digital Collection is an open access publishing initiative of the Health Sciences Library of the University of North Carolina at Chapel Hill. Financial support for the initiative was provided in part by a multi-year NC ECHO (Exploring Cultural Heritage Online) digitization grant, awarded by the State Library of North Carolina, and funded through the Library Services and Technology Act (LSTA). |
Volume Number | 50 |
Health Discipline | Medicine |
Digital Format | JPEG 2000 |
Print / Download PDF Version | http://archives.hsl.unc.edu/nchh/nchh-17/nchh-17-050.pdf |
Document Sort | all; nchh-17 |
Volume Link | http://dc.lib.unc.edu/cdm/search/collection/nchh/field/identi/searchterm/NCHH-17-050 |
Title Link | http://dc.lib.unc.edu/cdm/search/collection/nchh/field/documa/searchterm/NCHH-17 |
Catalog Record link | http://search.lib.unc.edu/search?R=UNCb1306322 |
Revision History | done |
Description
Fixed Title * | Page 632 |
Document Title | North Carolina Medical Journal [1940-Present] |
Subject Topical Other | Public Health -- Periodicals.; Physicians -- North Carolina -- Directory.; Societies, Medical -- North Carolina -- Periodicals. |
Description | Includes Transactions of the Society, -1960; 1961- , Transactions issued separately, bound in.; Includes Transactions of the auxiliary to the Medical Society of the State of North Carolina and Proceedings of the North Carolina Public Health Association. Official organ of the Medical Society of the State of North Carolina, 1940-May 1972; of the North Carolina Medical Society, June 1972-. Vols. for 1940-May 1972 published by the Medical Society of the State of North Carolina; June 1972- by the North Carolina Medical Society. |
Contributor | Medical Society of the State of North Carolina. Transactions.; Medical Society of the State of North Carolina.; North Carolina Medical Society.; North Carolina Medical Society. Transactions.; North Carolina Public Health Association. Proceedings. |
Publisher | [Winston-Salem] : North Carolina Medical Society [etc.], 1940- |
Repository | University of North Carolina at Chapel Hill. Health Sciences Library. |
Host | University of North Carolina at Chapel Hill |
Date | 1989 |
Identifier | NCHH-17-050-0696 |
Form General | Periodicals |
Page Type | all; article |
Language | English |
Rights | This item is part of the North Carolina History of Health Digital Collection. Some materials in the Collection are protected by U.S. copyright law. This item is presented by the Health Sciences Library of the University of North Carolina at Chapel Hill for research and educational purposes. It may not be republished or distributed without permission of the Health Sciences Library. |
Filename | ncmed501989medi_0696.jp2 |
Digital Collection | North Carolina History of Health Digital Collection |
Sponsor | The North Carolina History of Health Digital Collection is an open access publishing initiative of the Health Sciences Library of the University of North Carolina at Chapel Hill. Financial support for the initiative was provided in part by a multi-year NC ECHO (Exploring Cultural Heritage Online) digitization grant, awarded by the State Library of North Carolina, and funded through the Library Services and Technology Act (LSTA). |
Volume Number | 50 |
Issue Number | 11 |
Page Number | 632 |
Health Discipline | Medicine |
Full Text | that either physician could terminate the partnership on 90 days' notice. The partnership agreement also contained the following provision: In the event of a dissolution of the co-partnership herein created, it is agreed by Dr. H. M. Rutledge, one of the partners, that he will not engage in the practice of the profession of medicine in the town of Lumberton, Robeson County, North Carolina, or within 100 miles of said town of Lumberton, Robeson County, North Carolina, for a period of five years from the date of said dissolution. In January, 1940, the parmership was dissolved and Dr. Rutledge immediately opened an office for the practice of medicine in Lumberton, limiting his practice to the treatment of diseases of the eyes, ears, nose and throat. Both of the partners had limited their practice to these specialties. Dr. Beam immediately brought suit against Dr. Rutledge, and Dr. Beam obtained a preliminary injunction prohibiting Dr. Rutledge from engaging in the practice of medicine in Lumberton or within 100 miles of that city pending the trial of the case. Dr. Rutledge appealed to the North Carolina Supreme Court. The Supreme Court upheld the validity of the covenant. The court stated that the test to be applied in determining the reasonableness of a restriction is whether the restraint provides fair protection for the interest of the party who seeks the enforcement, but is not so broad as to interfere with the rights of the public. The nature of this test, the courts observed, is such that reasonableness must be determined on a case-by-case basis. Since the Beam case, the courts in North Carolina have decided a great number of cases and developed a considerable body of case law governing the interpretation and enforcement of restrictive covenants. In determining whether a particular covenant is reasonable and therefore enforceable, the courts have applied the following rules. Physicians who are considering the use of a restrictive covenant clause or who are reviewing their existing contracts should consider the following points: employment and before the physician begins work. Any deviation from that procedure, however, may result in a court finding that the covenant was given without valuable consideration and is, therefore, unenforceable. For instance, courts have invalidated covenants that were entered into after the employment relationship had commenced. While covenants may be enforceable when new "value" (such as a raise in salary) is given after employment commences, this practice is risky. Thus, the only safe way of meeting the consideration requirement for physicians is to have the employment contract with the restrictive covenant executed in advance of the commencement of work by the physician and at the time the employment agreement is created. 4 The covenant must be reasonable with regard to the scope of activity prohibited. In order to be reasonable and therefore enforceable, a covenant must be drafted so that it only resuicts the physician from a reasonable scope of activity. Cases in North Carolina such as the Beam case have upheld restrictions for physicians from practicing "medicine" even though they are specialists. Although there are no decisions in North Carolina which find that a narrower area is required in a particular specialty area, it is possible that as the law develops, in certain circumstances a broad prohibition against the practice of "medicine" would be considered unreasonably broad by a court. Thus, it is prudent for single specialty groups to consider restricting activity only within that specialty. 5 The covenant must be reasonable as to the time of the resu-iction. As noted above, in Beam, the Supreme Court of North Carolina approved a five-year period of restriction as reasonable. Recent cases outside of the medical area have indicated that the court has narrowed the time period which it considers to be a reasonable restriction. Time periods that extend beyond a two- or three-year period following the termination of the agreement may be increasingly suspect as being too long to protect the legitimate interest of the medical group. 1 The covenant must be in writing and signed by the employee. Oral restrictive covenants are not enforceable. 2 The covenant must be ancillary to the protection of the legitimate business interests of the medical group. Examples of a legitimate business interest are the patient relationships and name recognition developed through the investment of the group's time, efforts and resources. The covenant must be limited to protecting this interest. 3 The covenant must be supported by valuable consideration. An individual physician cannot merely agree to refrain from practice. This promise will not be enforceable, because it lacks the legal concept known as "consideration" which means "value." In the medical contract context, this legally sufficient consideration generally exists when the physician enters into an employment contract in connection with accepting the offer of 6 The covenant must be reasonable as to the territory in which the activity is prohibited. In the Beam decision, the Supreme Court of North Carolina found reasonable a territory of 100 miles. Since that time, however, courts have increasingly narrowed the permissible geographic territory to be restricted. The exact extent of the territory to be restricted, however, should be based upon the business activity of the medical group. If the medical group draws patients from a county or series of counties, a restriction based upon those economic realities is likely to be enforceable. On the other hand, if the scope of the covenant extends beyond the drawing area of the medical group, it is likely to be deemed unenforceable. A recent case from the North Carolina Court of Appeals graphically illustrates this concept. In Beasley v. Banks, 90 N.C. App. 458 (1988), the North Carolina Court of Appeals considered a restrictive covenant between an optician and an optometrist. In Beasley, the defen- 632 NChU / November 1989, Volume 50, Number 11 |
Digital Format | JPEG 2000 |
Print / Download PDF Version | http://archives.hsl.unc.edu/nchh/nchh-17/nchh-17-050.pdf |
Document Sort | all; nchh-17 |
Article Title | Physician Employment Contracts And Restrictive Covenants |
Article Author | Keith M. Korenchuk; Stephen R. Hunting |
Volume Link | http://dc.lib.unc.edu/cdm/search/collection/nchh/field/identi/searchterm/NCHH-17-050 |
Title Link | http://dc.lib.unc.edu/cdm/search/collection/nchh/field/documa/searchterm/NCHH-17 |
Catalog Record link | http://search.lib.unc.edu/search?R=UNCb1306322 |
Revision History | done |
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