To Compete or Not to Compete: Restrictive Covenants in Physician-Hospital Employment Contracts

Post Authored by Teresa M. Dettloff

Restrictive covenants, or covenants not to compete, are common in physician-hospital contracts for employment. When a dispute about whether a restrictive covenant should bind a physician who has left employment at the hospital arises, the first step for a court, before considering the terms of a restrictive covenant, is to determine 1) whether the restrictive covenant is ancillary to a valid contract; and 2) whether the restrictive covenant is supported by adequate consideration. Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327. Illinois state courts find adequate consideration to be two years of continued employment. Illinois federal courts, however, have declined to adopt this bright-line rule. Therefore, there is a distinct divide between how Illinois state and federal courts analyze whether restrictive covenants are supported by adequate consideration.  

The Illinois Supreme Court has repeatedly found that geographic and temporal restrictions on a physician’s ability to practice medicine are reasonable. See Canfield v. Spear, 44 Ill.2d 49 (1969) (3–year prohibition from practicing all medicine within the City of Rockford and surrounding radius of 25 miles); Cockerill v. Wilson, 51 Ill.2d 179 (1971) (5–year prohibition of practicing medicine in a 20–mile area); Bauer v. Sawyer, 8 Ill.2d 351 (1956) (5–year prohibition on practicing medicine within a 25–mile radius of Kankakee); Storer v. Brock, 351 Ill. 643 (1933) (unlimited time prohibition from practicing medicine in the entire City of Chicago). Illinois appellate courts have applied a bright-line rule that employment of less than two years does not constitute adequate consideration for a non-compete agreement. See Fifield v. Premier Dealer Services, Inc., 2013 IL App (1st) 120327.

Conversely, federal courts have summarily rejected this bright-line rule in favor of examining the totality of the circumstances. Federal courts have instead adopted the fact-specific approach. The Northern District of Illinois in LKQ Corp. v. Thrasher, 785 F.Supp.2d 737, 744 (N.D. Ill. 2011) specifically noted that “[w]ithout a stronger foundation in law and logic, the Court cannot mechanically apply a bright-line test that, in certain situations, may have pernicious consequences. The more prudent course of action is to take the more fact specific approach that some Illinois courts have suggested.”

Federal courts typically consider the length of employment in conjunction with the terms on which an employee left their employment. Federal courts have found adequate consideration where an employee has been employed for less than two years and voluntarily resigned from their position. The Northern District of Illinois in Montel Aetnastak, Inc. v. Miessen, 998 F.Supp.2d 694, 715 (N.D. Ill. 2014) found that 15 months of employment, coupled with a voluntary resignation, was enough for the court to conclude that the employee was provided with a “substantial period” of employment and that the agreement was supported by adequate consideration. Id. at 716.

The Northern District of Illinois has considered other factors aside from length of employment, such as compensation, including raises and bonuses, and the terms of an employee’s termination in deciding whether there is adequate consideration. R.J. O’Brien & Associates., LLC v. Williamson, 2016 WL 930628-U, at *3 (N.D. Ill. 2016) (citing  Montel, 998 F.Supp.2d at 716); Bankers Life, 2015 WL 515965 at *3. Benefits provided to a physician, such as assistance in obtaining credentials and payment of credentialing fees, are considered when assessing whether there is adequate consideration to support a restrictive covenant. Prairie Rheumatology Associates, S.C. v. Francis, 2014 IL App (3d) 140338 (2014).

Ultimately, Illinois courts have generally upheld restrictive covenants in physician contracts that are relatively broad in scope. While Illinois has applied the Fifield bright-line rule, federal courts have summarily rejected this approach in favor of the totality of the circumstances test. Unless the Illinois Supreme Court rules on the issue, federal courts will likely continue to deviate from the bright-line rule that appears to take precedence in state court. 

About the Author:

Teresa Detloff

Teresa is an associate at Brennan Burtker LLC, focusing her practice on medical malpractice defense. Teresa is a graduate of Loyola University Chicago School of Law, where she served as a lead article editor for the law journal. Teresa currently serves as a member of the advocacy committee for the United Nations Association Chicago chapter.

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