Mohanty v. St. John Heart Clinic, S.C. 866 N.E.2d 85 (Ill. 2006) - Doctors Face Steep Uphill Battle In Attempting to Void Noncompetition Agreements

The validity of doctor noncompetition agreements frequently arises under Illinois law. In 2006, the Illinois Supreme Court decided the Mohanty case which has made it extremely difficult for doctors to successfully challenge noncompetition clauses in their employment contracts.

The Mohanty case is significant because it upheld two doctor-clinic noncompetition agreements; both with substantial restrictions on the doctor.

The Defendant in the case was a heart clinic owned and operated by Dr. Monteverde, board certified in both cardiology and internal medicine.

The first noncompetition agreement was entered into by the Defendant clinic and Dr. Ramadurai. Dr. Ramadurai's contract called for minimum compensation of $160,000 per year, but provided that upon termination, "Dr. Ramadurai 'shall not' practice medicine within a two-mile radius of any Clinic office or at any of the four hospitals where the Clinic operated for a period of three years.

The second noncompetition agreement was entered into by the Defendant and Dr. Mohanty. This contract also guaranteed Dr. Mohanty minimum compensation of $160,00, but provided that upon termination "Dr. Mohanty 'shall not' practice medicine within a five-mile radius of any Clinic office or at any of the four restricted hospitals for a period of five years." Id. at 90.

The Illinois Supreme Court held that (a) the Doctors had not shown any breach of the employment contracts which would render the noncompetition clauses unenforceable; and (b) that neither restrictive covenant was "unreasonably overbroad in [its] temporal or activity restrictions."

The Court first rejected the doctors' contention that noncompetition agreements in physician employment contracts were void as against public policy.

Next, the Court held that "under general contract principles, a material breach of a contract by one party may be grounds for releasing the other party from his contractual obligations." The Doctors contended that the clinic breached the employment contracts by billing Medicare for tests that they conducted. Thus, alleged the doctors, the clinic wrongfully profited from their work. Furthermore, they alleged that the billing practice of the clinic was improper. The Illinois Supreme Court upheld the finding of the trial court that the plaintiff doctors had not proved a breach of contract.

Therefore, the employment contracts, and the non-competition clauses contained in those agreements were valid and enforceable.

The obvious result of this case is that a doctor will have an exceedingly difficult time in challenging a noncompetition clause in an employment contract, provided that the clause closely resembles the clauses upheld in the Mohanty case.

Edward X. Clinton, Jr.
Copyright 2009