One of Ohio’s most influential appeals courts has affirmed the power of courts to modify non-compete agreements (here, a physician’s employment contract) to strike the right balance between employers’ interests in protecting their proprietary and other investments in employees and employees’ rights to seek other employment. See MetroHealth System v. Anjay Khandelwal, M.D., et al., 2022-Ohio-77.
MetroHealth System v. Anjay Khandelwal, M.D.
This case arose from a non-compete agreement between Dr. Anjay Khandelwal and his former employer, MetroHealth. Dr. Khandelwa was a burn surgeon and the director of the burn center at MetroHealth. His agreement stated that for two years after his employment ended, Dr. Khandelwal’s could not provide similar services within 35 miles of MetroHealth.
When Dr. Khandelwal resigned from MetroHealth, he immediately accepted a position as the director of the burn center at Akron Children’s Hospital, which was within 35 miles of MetroHealth.
MetroHealth sued and the trial court held a three-day hearing to determine if it would issue an injunction preventing Dr. Khandelwal from working at Akron Children’s. After the hearing, the trial court decided to modify Dr. Khandelwal’s agreement such that he could work at Akron Children’s immediately performing burn surgery; however, he could not work in a director/management capacity for one-year. MetroHealth appealed the trial court’s decision to Ohio’s Eighth District Court of Appeals, which affirmed the trial court’s ruling.
The logic behind both courts’ decisions to modify the scope and duration of the non-compete was that:
- Khandelwal’s role as the director of the burn units provided him with some of MetroHealth’s secret business information (i.e., pricing, referrals, operations, etc.) and that it would be unfair competition for him to immediately go to another hospital in a role where he could possibly share that information. So, prohibiting him from working as a director would protect MetroHealth’s legitimate business interests.
- The nature of the work at issue – burn surgery – was driven more by the locality of the hospital than by personal or referral relationships with the physician. MetroHealth even admitted that burn patients are supposed to go to the nearest hospital because time is of the essence and doing so provides the best patient outcome. Therefore, the 35-mile limitation was not reasonable.
- Khandelwal would suffer an undue hardship if prevented from working as a burn surgeon within 35 miles of his former employer. Dr. Khandelwal could only work at verified burn centers, and MetroHealth and Akron Children’s were the only two verified burn centers in the region. The Court reasoned that it would not be fair for Dr. Khandelwal to be forced to move regions.
- The public would be harmed by having one less highly trained and specialized physician practicing in the region.
Neither court explained why it made sense to shorten the period of time Dr. Khandelwal could not serve in a director/manager role at his new employer. Confidential business information may eventually become stale within one to two years, which is why non-compete durations of that length are often upheld. Ohio Courts often use their ability to “blue-pencil” non-compete agreements to the minimum time period to protect an employer’s legitimate business interest.
Most physician non-competes, while “disfavored,” are routinely enforced by Ohio’s courts, often under the rationale that patients are ultra-loyal to their physicians because of the personal nature of healthcare, and therefore, restrictive covenants protect hospitals’ investment in their referral networks. But this case was different because of the unique nature of burn medicine.
In sum, Ohio courts have affirmed their power to modify non-compete provisions of physician contracts to protect hospitals’ legitimate business interests, prevent undue hardships on doctors and avoid injuring the public.
Physician employment agreements – especially non-compete provisions – are critical for physicians and hospitals to protect their respective interests, be it compensation or competition. KJK’s attorneys routinely negotiate, enforce and defend physician contracts. If you are a doctor negotiating or assessing your employment agreement and have any questions or thoughts, please contact Samir Dahman at sbd@kjk.com or 624.427.5750.