Georgia Court of Appeals’ Nixes Physician Non-Compete Because It Covered Territory in Which Referral Sources Were Located but Where Physician Had Not Worked

Posted by Benjamin I. Fink on

In a recent decision, the Georgia Court of Appeals held that an employer cannot try to protect referral sources by prohibiting a former employee from working in an area where those sources are located, if the employee never worked in that area and the employee was not shown to have developed any contacts there.  Peachtree Fayette Women’s Specialists, LLC vs. Turner 10 FCDR 2448 (July 30, 2010).

In the case, the physician filed a declaratory judgment action asking the Court to declare her non-compete with her former practice unenforceable.  Specifically, the physician objected to the portion of the non-compete which restricted her from practicing at Piedmont Hospital in Atlanta because she had never worked there, was never asked to work there and the medical practice never maintained an office there.  The physician testified that she was not told when she was hired that she would be performing services at Piedmont Hospital and that she was never asked to work at Piedmont Hospital during her employment.  The owner of the medical practice admitted that the physician had never worked at Piedmont Hospital during her employment with the practice.  The evidence also showed that the practice never maintained an office at or near Piedmont Hospital.

The physician’s employment agreement did provide that her duties would include practicing medicine at offices located at Piedmont Hospital, and that she would provide services at Piedmont Hospital; however, that never did occur.  The practice had even completed an application on the physician’s behalf to obtain staff privileges at the hospital, but they were courtesy staff privileges only and the physician never actually saw any patients or provided any medical services at the hospital.

The owner of the practice testified that he brought referrals from Piedmont Hospital to the practice located in Fayette County because he had previously practiced at Piedmont Hospital for seventeen years.  He also testified he had a number of referral sources there whom he introduced to the physician.

The Court found the non-compete unenforceable because the restriction covered not only a hospital where the physician never worked, but where the medical practice had abandoned all intention of working.  The Court found that the practice had not established a sufficient justification for the restriction because the practice failed to show that the physician established relationships with anyone at Piedmont Hospital during her employment so as to generate her own referrals.

The decision is not particularly surprising given the strict scrutiny which is applied to employment agreements, even employment agreement signed by physicians, and the fact that the territory of the non-compete must be commensurate with the territory in which the employee (or in this case the physician) works for or represents the employer.  Since the physician did not work for or represent the employer at Piedmont Hospital, the Court’s finding that the territory was overbroad was not unexpected.