Tuesday, December 16, 2008

Iowa Court Holds Physician Non-Compete Fails Reasonableness Test (Board of Regents v. Warren)

The Iowa Court of Appeals recently upheld the denial of a preliminary injunction in a physician non-compete case filed by the University of Iowa against one of its assistant professors in the College of Medicine. The case highlights the "protectable interest" test as well as the infrequently-cited "public interest" consideration some courts take into account.

Dr. Thomas Warren became employed by the University of Iowa in July of 2001 as an assistant professor with the College of Medicine. Warren spent about 80 percent of his time conducting cancer research, and also provided medical care to certain patients as directed by the University. Although his tenure track was seven years, it was apparent to Warren early on that he was not going to make tenure due to his inability to meet scholarship and research funding goals.

In 2005, about four years after he started with the University, Warren left and signed on with Iowa Blood and Cancer Care, ostensibly a competing medical care provider in Cedar Rapids. Warren's non-compete agreement with the University barred the practice of medicine for two years after his resignation within 50 miles of a practice site in Iowa City. Cedar Rapids was within the restricted territory.

The University sued, seeking an injunction to bar Warren from practicing medicine consistent with the terms of the covenant. The trial court denied the injunction, and the appellate court affirmed.

Iowa courts use a sensible three-part reasonableness test. It requires a court to consider: (a) whether the restrictive covenant is reasonably necessary for the protection of the employer's business; (b) whether it is unreasonbly restrictive of the employee's rights; and (c) whether it prejudices the public interest. The first and third elements were discussed in the case.

As to the first prong of the test, the court concluded that the covenant was not reasonably protective of the employer's business. Four factors supported the finding: (a) there was no evidence Warren had high-level customer contacts with University patients, as 80 percent of his time was spent on research; (b) Warren arranged for the Cancer Care patients to remain at the University around the time he left; (c) he received no special training from the University; and (d) the University spent no money to promote Warren's practice in the community.

These factors mirror the "protectable interest" test which has caused much confusion in Illinois and other jurisdictions. Iowa courts recast the protectable interest test and embed it within an overall reasonableness analysis that is much easier for courts to apply and for litigants to understand.

The court also discussed the public interest element of the reasonableness test. The court was persuaded by the fact that the federal government had designated Cedar Rapids as underserved by physicians, and that the visa quota for physicians from other countries had been increased. The public interest, therefore, favored Warren and militated against enforcement.


Court: Court of Appeals of Iowa
Opinion Date: 11/26/08
Cite: Board of Regents v. Warren, 2008 Iowa App. LEXIS 1192 (Iowa Ct. App. Nov. 26, 2008)
Favors: Employee
Law: Iowa

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