Today, creating and maintaining appropriate protections for “idea capital,” “relationship capital” and “information capital” are critical to any organization’s success in this incredibly competitive and knowledge-based world. Creativity, ideas, vendor relationships, customer relationships, pricing and goodwill are absolutely vital.
This is true whether one is a manufacturer of machine components, an advertising agency, a surgeon or a pediatrician. However, the latter are affected by Colorado’s special rule for non-compete agreements between “physicians.” It states that:
“Any covenant not to compete provision of an employment, partnership or corporate agreement between physicians which restricts the right of a physician to practice medicine, as defined in [the Colorado Medical Practice Act], upon termination of such agreement, shall be void; except that all other provisions of such an agreement enforceable at law, including provisions which require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the agreement, shall be enforceable. Provisions which require the payment of damages upon termination of the agreement may include, but not be limited to, damages related to competition.”
At The Reha Law Firm LLC, our highly experienced Colorado attorney for physicians’ non-compete agreements, John F. Reha, provides knowledgeable and innovative resolutions to disputes between private medical practitioners, professional practices and other businesses.
The respected author of “The Law of Trade Secrecy and Covenants Not to Compete in Colorado,” John has been honored with inclusion in Colorado Super Lawyers for five years in a row. Only 5 percent of the lawyers in the state were selected.
The question of who qualifies as a “physician” would seem clear. Those persons authorized to “practice medicine” are within the statute’s express language. But some issues still exist as to who else may qualify. For instance, an oral surgeon may hold an M.D. degree or possess a D.D.S. degree. Some radiologists are chiropractors.
Assuming one is a “physician” for purposes of the statute, a non-compete which prohibits, restricts or limits the physician’s actual practice is “void.” Thus, physicians cannot restrict the ability of other physicians to practice in any location they desire.
Instead, what is available is an agreement or clause in an agreement (such as a buy-sell agreement between partners in a medical group practice) that requires a physician exiting the practice who intends to establish another practice to pay to the practice those “damages…reasonably related to the injury suffered by reason of termination of the agreement…which…may include, but not be limited to, damages related to competition.”
This provision has caused significant consternation in Colorado’s courts. As a matter of general damages law in Colorado, “liquidated damages” clauses (those that provide for an approximation of damages before the contract is even breached) must not constitute a penalty and they must approximate lost net profits to be incurred by the party that will be harmed.
Thus, provisions in competition restriction agreements between physicians that adopt any measure other than true lost net profits to the practice the exiting physician is leaving will be unenforceable. It is imperative that medical practices and medical practice managers take special care to insure that provisions which toe this narrow line are used instead of those that simply look to an arbitrary amount or which measure loss on lost billings or revenue (which represent gross, not net, numbers).
To schedule a consultation with our seasoned lawyer, call The Reha Law Firm LLC at (303) 717-3632(303) 717-3632, or contact us online. From our office in Littleton, we represent clients in Denver and throughout Colorado.
DISCLAIMER: This information is being provided as a public service, and by doing so, neither The Reha Law Firm LLC nor any attorney associated with The Reha Law Firm LLC is providing any legal advice of any nature to any person or firm, whatsoever. If the reader believes that he or she is in need of legal advice as to the issues discussed herein or for any other reason, he or she is advised to retain an attorney of choice to provide appropriate legal representation.
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$4.2 Million Unfair Competition Award Upheld on Appeal. John was lead counsel in Optimus Corp. v. Synergetics, Inc., Colorado Court of Appeals No. 12CA1910. On March 6, 2014, the Court of Appeals issued its Opinion unanimously affirming a decision in which $2,238,042 actual damages... Read more
Auto-Bicycle Collision Generates Two Limits Settlements. In 2012-2013, John represented a bicyclist who was struck by a pickup truck while riding. The cyclist incurred significant long-term cognitive injuries. John obtained a settlement against the driver at fault for the large limits of that driver's auto policy... Read more
Another Auto-Bicycle Collision Generates Limits Settlement. In 2012-2013, John represented another bicyclist who was struck by a car while riding. The cyclist incurred severe neuromuscular, nerve and spinal injuries. John obtained a limits settlement against the insurance policy... Read more