Non-competition provisions signed by Rhode Island physicians on or after July 12, 2016 are now unenforceable pursuant to recent legislation. As summarized in a prior post, the Rhode Island Superior Court in the case Medicine and Long Term Care Associates, LLC v. Khurshid, PC 2015-0458, 2016 WL 1294194 (R.I. Super. Ct. Mar. 29, 2016) recently refused to enjoin a breach of a non-compete agreement by a local physician because it was against the public interest. See Medical Non-Competes in Rhode Island: No Clean Bill of Health. The Rhode Island General Assembly recently codified that public interest through the enactment of a statute prohibiting the enforcement of non-competes against licensed physicians in the employment context. Summaries of the general law governing non-competes can also be found on It’s Your Business. See Is The Classification Of Your Workers Putting Your Business At Risk? and Distinguishing Between Types Of Non-Compete Provisions In Rhode Island.
Enacted on July 12, 2016, R.I. Gen. Laws § 5-37-33 declares void and unenforceable “[a]ny contract or agreement that creates the terms of a partnership, employment, or any other form of professional relationship with a physician licensed to practice medicine pursuant to [chapter 37 of title 5 of the Rhode Island General Laws] that includes any restriction on the right to practice medicine.” This provision not only renders traditional non-competes unenforceable vis-à-vis physicians, but it also voids any contract that seeks to prevent a physician from soliciting patients of the physician’s former employer. Also, while the recent Khurshid decision did not prohibit a former employer from suing for money damages for violation of a non-compete, § 5-37-33 bars both equitable relief (i.e., a court order prohibiting the physician from working for a competitor) and money damages based on a breach of a non-compete agreement.
The General Assembly issued a press release at the time the legislation was introduced stating that its primary intent was to encourage physicians to practice in Rhode Island. The press release also referenced the benefits of allowing patients to remain with their doctor of choice, even if that doctor elects to move his or her practice. See http://www.rilin.state.ri.us/pressrelease/_layouts/RIL.PressRelease.ListStructure/Forms/DisplayForm.aspx?List=c8baae31-3c10-431c-8dcd-9dbbe21ce3e9&ID=11460. Thus, the enactment of § 5-37-33 is legislative recognition of largely the same public interest that was the basis for the Khurshid decision.
The sole notable exception to this statutory prohibition relates to the sale of a physician’s practice. A non-compete provision contained in an agreement to sell a physician’s practice is enforceable, so long as the prohibition on enforcement is no more than five years. § 5-37-33(c). This exception is consistent with non-compete case law, both in Rhode Island and throughout the country, that looks more favorably on enforcement of non-competes related to the sale of a business, because (1) parties usually have more equal bargaining power in that specific context than in the employment context, and (2) often a legitimate business interest exists in preventing the seller of a business from competing with that business in the period of time following that sale. See, e.g.¸ Chelo’s of Woonsocket v. Chelo & Mozzarellas of N. Providence, C.A. No. PB 03-4646, 2004 R.I. Super. LEXIS 51 (R.I. Super. Ct. Mar. 8, 2004). It appears that non-competes related to the sale of a physician’s practice will continue to be analyzed similarly to other sale of business non-competes, albeit with a five-year cap on any temporal limitation. It remains to be seen whether this five-year cap creates a presumption of reasonableness for all sale of business non-competes.
The effect of this legislative prohibition on the business of medicine in this state are of course dramatic, but perhaps not quite as extensive as one initially might think. The statute takes effect “upon passage,” which, in other contexts, has been interpreted to mean that the legislation is only intended to have prospective effect. Hydro-Manufacturing, Inc. v. Kayser-Roth Corp., 640 A.2d 950 (R.I. 1994). Thus, any employment-related physician non-competes signed on or after July 12, 2016 would be governed by § 5-37-33. Using that statute to challenge physician non-competes that were signed prior to July 12, 2016 arguably would seek to give the statute improper retroactive effect, and may also run afoul of state and federal constitutional law principles. Thus, while the prognosis for physician non-competes in Rhode Island in the employment context is not good, a faint pulse appears to remain.
I would like to thank Derek T. Rocha, a summer associate at Adler Pollock & Sheehan P.C., for his research assistance in relation to this blog post.