Rhode Island Bars Physician Non-Competes

Only rarely do courts strike non-competes on the final element of the three-part reasonableness test: whether enforcement would be contrary to a public interest.

Earlier this year, a Rhode Island court followed Massachusetts' lead and held that a physician non-compete could not be enforced through injunctive relief. The court believed "the strong public interest in allowing individuals to retain health care service providers of their choice 'outweighs any professional benefits derived from a restrictive covenant.'" Med. & Long Term Care Assocs., LLC v. Khurshid, 2016 R.I. Super. LEXIS 39 (R.I. Super. Ct. Mar. 29, 2016). Khurshid did not, however, rule out the possibility of a damages award for a breach. Its ruling was tailored to the injunction the medical practice sought.

It didn't take long for the other shoe to drop.

In July, Rhode Island banned physician non-competes in their entirety - meaning that the narrow escape hatch for employers to seek legal relief has closed (at least for contracts signed after the law's effective date of July 12, 2016. It is likely that contracts entered into before this date are governed by the common-law, which still may bar injunctions but may not prevent a damages award.

Public policy arguments like the one advanced in Khurshid (and in other states for that matter) are difficult to make. Normally, statements of public policy come through constitutional provisions, statutory text, or a widely and universally declared judicial policy. In the context of non-compete arrangements, lawyers generally are not bound by them due to the Rules of Professional Conduct. Physicians have met with some success in Rhode Island in elsewhere due to the public interest in fostering the doctor-patient relationship. Investment advisers, on the other hand, are susceptible to non-compete enforcement, as are accountants. Other states carve out certain professions through legislative fiat, such as the relatively recent Hawaii law that bans non-competes for tech workers.

Public policy arguments are indeed difficult to make in the normal case because trial court judges do not set policy. And most non-compete disputes are quite fact-intensive. It is unusual to see blanket, categorical exclusions for enforcement.