For years, we always advised that a restrictive covenant in a professional employment agreement should not be longer or broader than is absolutely required for protection. A fairly recent (March, 2008) Indiana Supreme Court decision supports that position and provides insights into how restrictive covenants fare under Indiana law. A podiatrist was employed by a practice with several offices in Indiana. During the last two years of his employment, the podiatrist only worked in Marion, Howard, and Tippecanoe County offices. However, under the restrictive covenant in his employment agreement, upon termination, he was prohibited from practicing in 14 counties listed in the agreement, two unlisted counties in which the practice had offices, and all counties contiguous to those 16 counties. The total number of counties in which he was restricted from practicing was 43. The podiatrist also could not solicit patients from, or employees of, his former employer. The length of the restriction was two years. After termination, the podiatrist accepted employment with a practice located in Hamilton County (contiguous to Marion County) in an office located 10 minutes from one of his former employer’s offices. The Supreme Court held that the practice restriction would apply only in Marion, Howard, and Tippecanoe Counties, the counties in which the podiatrist had worked during the two years before termination. Thus, the podiatrist was not prohibited from practicing in Hamilton County. Here are the principles gleaned directly or indirectly from this case:
Restrictive covenants are not unenforceable against professionals as a matter of public policy so long as they are reasonable. Although this case dealt with a podiatrist, the same principles apply to medical or dental professionals.
• A restrictive covenant that covers areas in which the professional did not perform services nor have patient contact will not be enforced. The geographical restriction should relate to where professional services were performed and patient relationships developed.
• If the restrictive covenant is written in such a way that the court can excise and enforce portions of the covenant, it will do so, but it will not re-write the covenant. Thus, the court selected and enforced the covenant in the three counties where the podiatrist performed professionally while not enforcing the covenant in the other 40 counties.
• Depending on the drawing area of the practice, a mileage restriction from offices in which the professional actually worked may be more suitable than a general area. The court determined that the contiguous county provision was unreasonable because in some cases it reached far beyond the former employer’s practice area.
• A “no defense” clause1 in an employment agreement may prevent a breach of the agreement by the employer from causing the restrictive covenant to be unenforceable. It depends upon how major the breach was.
• Although it was too late to prevent the podiatrist from soliciting his former employer’s patients and employees, the case was sent back to the trial court to determine whether the former employer was entitled to damages because of a breach of these restrictions.
• From an employer’s standpoint, there should be a provision whereby the covenant is “tolled” during any period when it is being violated. Otherwise, unless the employer has been able to enjoin the professional from competition while the case is being decided, the restrictive period may be over before the case is decided. If the running of the period is tolled, the period would start to run from the time the case is finally decided.2
• Attorney fees are not mentioned in this case. However, we recommend to employers that it is fair to have a provision whereby the prevailing party in litigation recover attorney fees and costs of litigation. This tends to discourage spurious lawsuits.
1 A clause that provides that any breach of the employment agreement by the employer is not a defense of the employee against enforcement of the restrictive covenant. 2 In this case, even though the restrictive period was over, the Supreme Court heard the case because it was a matter of public interest and a recurrent issue.
