• Michigan Court of Appeals Enforces Doctor's Non-Compete Clause
  • April 17, 2006
  • Law Firms: Miller, Canfield, Paddock and Stone, P.L.C. - Lansing Office; Miller, Canfield, Paddock and Stone, P.L.C. - Detroit Office
  • In the case of St. Clair Medical, P.C. v. Borgiel, the Michigan Court of Appeals recently upheld a lower court's decision to enforce non-compete provisions in a physician's employment contract that temporarily restricted the physician's ability to practice medicine near his former employer's medical clinics.

    During his employment, the physician had practiced at two of his employer's clinics, working almost exclusively at one facility. After resigning, the physician intended to practice within a few miles of a second clinic where he had worked less frequently. A non-compete clause in the physician's contract, however, restricted him from practicing medicine within a seven-mile radius of either clinic for one year following the end of his employment.

    In a lawsuit disputing the enforceability of the non-compete provisions, a trial court found the contract provisions to be reasonable and therefore enforced them. The physician then appealed his case to the Michigan Court of Appeals.

    In analyzing the reasonableness of the non-compete restriction, the Court of Appeals recognized that a medical employer may have one of three legitimate interests: (1) protecting against loss of patients to a departing physician; (2) protecting its investment in the physician's training; and (3) protecting confidential business information. The Court found that the non-compete clause reasonably protected the employer's interest in retaining patients, finding there was a recognizable risk that patients would follow a departing physician and that the physician might take unfair advantage of the employer's investments in advertising and goodwill within the restricted area. The physician argued he should not be held to the seven-mile radius practice restriction relative to the second clinic because he rarely worked there. The Court dispensed with that argument, however, because the non-compete provision clearly defined the seven-mile radius as applying to both clinics without qualification, thus making it irrelevant that the physician rarely practiced at the second facility.

    Finally, the Court noted that the American Medical Association's Principles of Medical Ethics provided no grounds for invalidating the physician's non-compete clause, so long as it was not excessive in terms of geographic scope or duration. The Court ultimately found the restrictions reasonable because the physician was able to maintain patient relationships either (a) outside of the modest restricted geographical radius or (b) inside that area either after waiting a year or, if earlier, by paying his employer a $40,000 "buy out" fee.

    WHAT DOES THIS CASE MEAN FOR EMPLOYERS?

    The Borgiel case demonstrates that employers who face competitive risks from former employees continue to have the option of limiting those risks by imposing reasonable contractual restrictions (as to time and geographic scope) on an employee's ability to compete against the company upon leaving employment. Employers who wish to impose such restrictions should consult with labor and employment counsel to ensure contractual non-compete clauses are reasonable and enforceable.