Non-Competition Clauses in Indiana Business Agreements

The Indiana Court of Appeals recently reviewed the enforceability of a three-year, 50-mile radius non-compete agreement for a physician in Mercho-Roushdi-Shoemaker-Dilley Thoraco-Vascular Corporation v. Blatchford, 900 N.E.2d 786 (Ind. Ct. App. 2009). Indiana business lawyers and their clients will benefit from the clarification offered by the Court. The case is noteworthy because the court held the non-compete agreement to be unenforceable, not because of the enormous geographical area, but solely because the particular physician was uniquely qualified to provide cardiovascular services in Terre Haute and the patients in Terre Haute would be harmed if the court enforced the non-compete clause.

Mercho-Roushdi-Shoemaker-Dilley Thoraco-Vascular Corporation (“MRSD”) is a physician group practice that provides cardiovascular medical services in both Indianapolis and Terre Haute. Blatchford was a shareholder of MRSD and a cardiovascular surgeon employed by MRSD who signed non-compete agreements pursuant to both his shareholder agreement and his employment agreement. Both non-compete agreements prohibited Blatchford from competing with MRSD or performing cardiovascular medical services for three years within a 50-mile radius around Terre Haute and a 50-mile radius around Indianapolis. After a dispute arose and MRSD terminated Blatchford’s employment, MRSD brought suit to enforce the non-compete agreement and requested a preliminary injunction to prohibit Blatchford from practicing in Terre Haute.

The court of Appeals cited the long-established rule that “to be enforceable a non-competition agreement must be reasonable”. Id. at 796. The court explained that non-competition agreements involve two conflicting policies – the freedom to contract versus the freedom of trade. Id. at 795. The court explained that “non-competition agreements by physicians should be given particularly careful scrutiny” because there are interests at stake other than just the parties to the agreement. Id. at 796.

There are three factors that a court must examine when determining whether a non-compete agreement is reasonable:

(1) Whether the agreement is wider than necessary for the protection of the employer in some legitimate interest: in this case, the court held that MRSD did have a protectable interest and that the scope of the agreement, three years and a 50-mile radius, was not unreasonable. Id. at 796;

(2) The effect of the agreement upon the employee: in this case, the court found that the three-year, 50-mile radius was “not unreasonable in this regard”. Id. at 797;

(3) The effect of the agreement upon the public: Blatchford presented testimony from numerous physicians and patients in Terre Haute that tended to show that Blatchford was uniquely qualified as a cardiovascular surgeon and Blatchford performed techniques that no other surgeons in Terre Haute performed. Blatchford also presented evidence to the effect that if Blatchford could not practice medicine in Terre Haute, the patients and the public would be harmed. MRSD did not provide any contrary evidence.

After reviewing the three factors, the court found that because the public would be harmed if Blatchford could not practice medicine in Terre Haute, the non-compete agreement was contrary to public policy and was not enforceable. Id. at 798-799.

This case is interesting not because of what the court held, but what the court did not hold. The court did not hold that a 50-mile radius around a place of employment is an unreasonable geographic area for a non-compete clause. The court did not even hold that two 50-mile radiuses, which essentially cover the entire southwestern part of Indiana, is an unreasonable geographic area for a non-compete clause. In fact, by its factor analysis the court basically implied that were this not a physician’s non-compete agreement, the 50-mile radius would be reasonable.

Although this case deals specifically with a non-compete clause for a physician, it raises the question of whether similar principles apply to other professionals such as dentists, chiropractors and veterinarians. The court did not discuss whether its public policy analysis might apply, for example, to a dentist who can present evidence that he or she is uniquely qualified or can perform services that no other dentist in the area provides.

The statements contained herein are for information purposes only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have questions regarding this article, please contact an attorney.