1. Non-Compete Clauses and Restrictive Covenants in Indiana
Indiana Osteopathic Association - 1st Annual Summer Update
August , 2017
Presented by:
Stephanie T. Eckerle, Esq.
One Indiana Square, Suite 2800
Indianapolis, IN
Phone: (317)
Tiaundra M. Gordon, Esq.
12800 N. Meridian Street, Suite 300
Carmel, IN
Phone: (317)

2. Restrictive Covenants: Roadmap
Overview of Restrictive Covenants
Policy Considerations
Breakdown of a Non-Compete Clause
Legitimate Employer Interest
Reasonableness
Time
Geography
Activity Prohibited
Effect on the Public
Blue Pencil Doctrine
First Breach Doctrine
Litigation Factors
Drafting Tips

3. Types of Restrictive Covenants
Non-competition Clauses
Non-solicitation Clauses
Of employees
Of patients
Non-planning Clauses
Confidentiality Clauses
Non-Disparagement Clauses

4. Public Policy: Physician Non-Competes
Protect the investment and goodwill of the employer.
Patients are affected in addition to employer/employee.
If a physician is forced to relocate outside of a geographical area, the patient’s choice is impacted.
Indiana courts have specifically rejected the claim that public policy precludes enforceability of non-competes against physicians.
Prohibiting physician non-competes should be left to the legislature
Central Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (2008).

5. Non-Compete Clauses: Reasonableness
Non-competition covenants are in restraint of trade and disfavored by law.
Covenants are construed against the employer.
Physician non-competes are given particular careful scrutiny.
Central Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (2008).

6. Non-Compete Clauses: Reasonableness
Three pronged analysis
Does the employer have a legitimate interest to be protected?
Is the scope of the restriction reasonable?
What is the effect upon the public?

7. Reasonableness: Employer’s Legitimate Business Interest
Employee must have gained knowledge, experience or unique competitive edge at employer’s expense.
Trade secrets (pricing, referral sources, proprietary technology, etc.)
Good will with patients
Patient list/contact information
Generally cannot prohibit:
Employee from operating similar business anywhere without protectable interest.
Using general skills learned on the job.
See Norlund v. Faust, 675 N.E.2d 1142 (1997).
Healthcare employers:
Have invested time and money in developing goodwill and patient base.
Have allowed physician access to patients.
Want to preserve patients/relationships when physician departs.
Want to preserve referral relationships when physician departs.

8. Analyzing the Scope of the Non-Compete
Reasonableness of the Following Elements:
Time
Geography
Type of Activities Prohibited

9. Reasonableness of Time
Case-by-case analysis.
1-3 years post-termination has been found reasonable.

10. Reasonableness of Geography
What is the interest of the employer that the geographic restriction serves?
Geography analysis for physicians:
The area served by the physician group/employer
The area served by the physician
Area restricted by the agreement
Raymundo v. Hammond Clinic Ass’n, 449 N.E.2d 276 (Ind. 1983).
Central Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (2008).

11. Reasonableness of Geography
Central Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (2008)
The non-compete restricted Krueger from working in 35+ counties.
Krueger only practiced in Marion, Tippecanoe and Howard.
Court held:
Non-compete was only applicable to those 3 counties.
Non-compete could not reach contiguous counties.
“An employer has invested in creating it’s physician’s patient relationships only where the physician has practiced. ….Noncompetition agreements justified by the employer’s development of patient relationships must be limited to the area in which the physician has had patient contact.”

12. Reasonableness of Geography
Medical Specialist, Inc. v. Sleweon, 652 N.E.2d 517 (1996)
Dr. Sleweon was an infectious disease doctor.
Practice was largely dependent upon patient referrals from other doctors as opposed to patient preference and selection.
Geographical analysis as not be based on whether there was a substantial patient base within the area.
Geographical analysis was based upon the established source of referrals.
Ten mile restriction upheld.

13. Reasonableness of Geography
Methods:
Radius
State-by-state
County-by-county
Territory
Location(s) where Physician provides services
i.e., main location; satellite offices; telemedicine; regularly worked; regularly scheduled

14. Reasonableness of Activities Prohibited
What did the employee’s job duties entail?
Are the prohibited activities in line with the employees job duties?
Are the prohibited activities broader than the duties of the employee?

15. Reasonableness of Activities Prohibited
Sharvelle v. Magnante, 836 N.E.2d 432 (2005)
Dr. Magnante practiced ophthalmology.
The non-compete prohibited him from practicing “health care of every nature and kind”.
The fact that Dr. Magnante took medical histories that asked about general health was related to treatment of the eye.
The broad non-compete was not reasonable and necessary to protect interest of the employer.
Blue-pencil doctrine not applied.

16. Reasonableness of Activities Prohibited
Medical Specialist, Inc. v. Sleweon, 652 N.E.2d 517 (1995)
Dr. Sleweon specialized in infectious disease.
The non-compete prohibited him from being involved in any medical practice.
Many of the illness he treated required knowledge of infectious disease and basic internal medicine skills.
Because of the nature of infectious disease medicine, it would be impossible to know whether physician was just practicing infectious disease or internal medicine.
Court held that prohibition on all typed of medical practice was reasonable.

17. Reasonableness: Other Factors
Raymundo v. Hammond Clinic Ass’n, 449 N.E.2d 276 (1983)
Dr. Raymundo argued the clause was not reasonably necessary to protect the Clinic’s interest.
Court held it was reasonable.
Court states that it was immaterial that:
Full partners of the Clinic were not subject to the same restriction.
The physician was not subject to the restriction during prior term as employee.

18. Effect on the Public
Mercho, et al. v. Blatchford, et a., 900 N.E.2d 786 (2009)
Physicians specialized in thoracic, vascular and cardiovascular surgery.
Court held that enforcing non-compete would have a negative impact on public because lack of suitable alternatives for heart surgery in Terre Haute.
Testimony included:
Only physicians in area that could implant a left ventricular assist device.
They were the best trained cardiovascular surgeons in area.
Would have to transfer patients to Indy if non-compete enforced.
Ability to give a second opinion in life-threatening situations.

19. The Blue Pencil Doctrine
Blue Penciling allows a court to strike unreasonable provisions from the non-compete.
If divisible, a court may “blue-pencil” the non-compete.
Court will remove only unreasonable portions of covenant and leave in reasonable portions.
Court will not add to covenant when it makes parties subject to agreement they did not make.
Indiana courts may void the covenant all together.
Indiana courts do not have to use the blue-pencil doctrine.
Sharvelle v. Magnante, 836 N.E.2d 432 (2005)

20. The Blue Pencil Doctrine
Sharvelle v. Magnante, 836 N.E.2d 432 (2005).
Court held non-compete unenforceable and would not blue-pencil it.
Court did blue-pencil the non-solicitation.
Dr. Magnante was prohibited from soliciting former, current or future patients.
Court deleted former and future patients.
Held that restraint on former and future patients was vague and too broad.

21. The First Breach Doctrine
Does an employer’s breach prevent
enforcement of a non-compete?
Maybe
The breach must be “material”.
The agreement cannot have a “no-defense” provision.
Millsaps v. Ohio Valley Heartcare, Inc. 863 N.E.2d 1265 (2007)
OVHC breached agreement by failing to provide timely and competent billing (failed to process $2m + in patient billings.
OVHC could not enforce the non-compete.

22. So you want to litigate…
What are the damages?
Injunctive relief
Appropriate when threatened injury to employer outweighs harm to physician
Appropriate when monetary damages can’t be calculated:
Effect on new patients that follow physician cannot be quantified
Effect on referrals cannot be quantified
Effect on loss of goodwill, patient confidence and loss of business reputation
Lost revenue
Revenue from patients who follow physician
Is there a liquidated damages clause?
Attorney Fees – Who pays?
Publicity – Do you really want it?

23. Will your future employer be impacted?
Indiana Health Centers, Inc. v. Cardinal Health Systems, Inc., 774 N.E.2d 992 (2002).
Indiana Health Centers and physician had already resolved the employment agreement/non-compete dispute through arbitration.
Indiana Health Centers brought an action against Cardinal Health Systems for tortious interference with a contract for hiring physician with a non-compete.
Court held there was no tortious interference.
Cardinal did not intervene and intentionally induce physician to take such action.

24. Employer Considerations in Drafting
What are you really trying to protect (i.e., patient base, reputation, referral sources, etc.)?
Is a non-solicitation adequate or do you need a non-compete?
Ensure that you are not overreaching.
Describe employer’s business and physician’s duties, access, etc.
Include a fee-shifting provision.
Extend length of restriction for any period which the covenant is violated.
Ensure that the agreement is binding on successors/assigns.
Ensure that clauses are severable.

25. Employer Considerations in Negotiating
What are your future professional goals and plans?
Consider the impact of a non-compete/non-solicitation on your type of practice (i.e., hospitalist v. dermatologist).
Can you have gainful employment post-termination?
Are there any carve-outs if you are terminated without cause, want to enter into a private practice, work at the VA, etc.?
Is there a buy-out?
Is it a moonlighting contract? Can you moonlight?
Can you treat patients that contact you (as opposed to those you solicit)?

26. Stephanie T. Eckerle, Esq.
Speaker Contact Information
Stephanie T. Eckerle, Esq.
One Indiana Square, Suite 2800
Indianapolis, IN
Phone: (317)
Tiaundra M. Gordon, Esq.
12800 N. Meridian Street, Suite 300
Carmel, IN
Phone: (317) _1