Rhode Island Trial Court Decision Could Spell Trouble for Employers Seeking to Enforce Restrictive Covenants Against Healthcare Employees

One of an employer’s first steps in a suit against a former employee to enforce a restrictive covenant is to seek a preliminary injunction to prevent the employee from continuing to violate his or her contractual obligations. But Rhode Island’s healthcare employers may no longer have that option with respect to employees who provide patient care, as a result of Judge Michael A. Silverstein’s recent novel decision in Medicine and Long Term Care Associates, LLC v. Khurshid.

The defendant in Medicine and Long Term Care Associates, Dr. Shahzad Khurshid, had entered into an “Association Agreement” with Medicine and Long Term Care Associates, LLC (MLTC), a healthcare provider that primarily serves geriatric patients in nursing homes. Under the agreement’s “Exclusivity and Non-Competition” clause, Dr. Khurshid agreed to provide “services for the benefit of the patients of MLTC on a mutually agreed upon schedule” in exchange for compensation. The agreement also contained numerous restrictive covenants. Those covenants prohibited Dr. Khurshid from soliciting MLTC’s employees, agents, contractors, referral sources, and patients; causing or inducing those entities or MLTC’s suppliers or vendors to terminate or suspend their business with MLTC; and maintaining a practice within nine miles of MLTC’s principal place of business.

In December 2014, after having rendered services to MLTC’s patients for over five years, Dr. Khurshid notified MLTC of his intention to terminate the agreement. A few days later, a retirement center that had a contract with MLTC notified MLTC of its intention to terminate its contract. MLTC suspected that the retirement center had retained Dr. Khurshid and, in response, MLTC filed suit to enforce the restrictive covenants in the agreement. In an effort to safeguard the interests that the restrictive covenants sought to protect, MLTC requested preliminary “injunctive relief prohibiting Khurshid from using business relationships established—and confidential information developed—while he was associated with MLTC.”

Although the court opined that MLTC may have otherwise satisfied the familiar elements required to obtain injunctive relief, it found that entering the requested injunction would undermine the public’s interest in allowing individuals to choose their healthcare providers. The court derived that public-interest not from a Rhode Island statute, but from a Massachusetts statute—namely, Massachusetts General Laws (M.G.L.) chapter 112, section 12X. That statute renders post-termination contractual restrictions on a physician’s right to practice void and unenforceable. Finding that the public policy embodied in the Massachusetts statute “outweighs any professional benefits derived from a restrictive covenant,” the court declined to enter a preliminary injunction enforcing the agreement’s restrictive covenants. 

Key Takeaways

As is true of many novel cases, the decision in Medicine and Long Term Care Associates raises more questions than it answers. Most notably, the court did not go so far as to hold that post-termination restrictive covenants as applied to physicians are void as against public policy (as the  Massachusetts law does). Instead, the court only declined to enter a preliminary injunction in MLTC’s favor and stressed that it left MLTC “to seek legal redress for its injuries,” that is, money damages. But in many cases, the harm that results from a violation of a restrictive covenant is difficult to quantify.

This decision also creates confusion for healthcare employers in Rhode Island.  Rhode Island courts have repeatedly recognized that employers may use restrictive covenants to protect legitimate interests such as goodwill, unique or novel employee training methods, trade secrets, and confidential information. And, the Supreme Court of Rhode Island has held that money damages cannot adequately compensate a party for these injuries. 

Another difficult issue that the Medicine and Long Term Care Associates decision raises but does not answer is whether its reasoning will be limited to physicians. For instance, Massachusetts has enacted a statute, M.G.L. chapter 112, section 74D, that bars the application of noncompetition agreements to nurses. Based on Medicine and Long Term Care Associates, a Rhode Island court could identify a public policy of permitting individuals to select their nurses and decline to enter a preliminary injunction enforcing a restrictive covenant against a nurse in Rhode Island. 

As a trial court decision, Medicine and Long Term Care Associates is not binding, but courts may rely on it in their discretion. Only time will tell how Rhode Island courts will interpret and apply Medicine and Long Term Care Associates and its reasoning. In the meantime, employers in the patient care industry may want to consider reviewing and revising their agreements with patient-care providers to account for the possibility that injunctive relief may not be available to enforce their restrictive covenants, and to ensure that they have considered alternative approaches to protecting their legitimate business interests.