### IN THE SUPREME COURT OF TENNESS EE AT NASHVILLE Februar y 2, 20 05 Session
MURFREESBOR

O MEDICAL CLIN IC, P.A. v. DAVID UDOM
Appeal by permission from the Court of Appeals, Middle Section

Chancery Court for Rutherford County No. 02-5739CV Hon. Robert E. Corlew, III, Chancellor

No. M2003-00313-SC-S09-CV - Filed June 29, 2005

The issue pre sented in this case is whether a covenant not to compete is enfor ceable between a physician and his former employe

r, a private medical clinic. The trial court conclude d that the noncompete agreeme nt was enforc eable a nd enj oined the ph ysician f rom es tabli shin g a

medical practice at a location within the restricted area. The Court of Appeals affirmed thetrial court’s decision that the non-comp ete agreement was enforceable, but reverse d the grant of the temporary injunction and remanded the case to the trial court for further de te rm in at io ns wi th re sp ec t t o t he ag re em en t’ s “ bu yout” provision. After

a thorough review of the issues presente d, including consider ations of public po li cy, we reve

rse the Co

urt of App eals’ jud

gment. We

hold that e

xcept for those spe cifical ly prescribed by

statute, physicians’ cove nants not to compete are unenforceable a nd void. Tenn. R. App. P. 11 Permission to Appeal; Judgment of the Court of Appeals is Reversed

W IL LI AM M. B ARKER , J., delivered the opinion of the court, in which E. R IL EY A NDERSON and A DOLPHO A. B IRCH , Jr., JJ., joined. J A NICE M. H OLDER , J., filed a concurring and dissenting opinion. F RANK F. D ROWOT A , III, C.J., not p artic ipati ng. Dougla s B. Janne

y, I II , Nashvill e, Tenne ssee, for the app ellant, D avid Udom

. JoshA. McCreary , Murfreesboro, Tennessee, for the appellee, MurfreesboroMedical Clinic, P.A.

OPINION

FACTUAL BACKGROUND

The pl aintif

f, Murfr eesboro Medical Clinic (MMC ), is a pr ivate med

ical pra ctice in Murfre esboro, T ennesse e, that e mploy s more tha

n fifty phy sicians. In e arly

2000, MMC made an1 A hosp italistis a physi cian, usual ly an int ernist, who specializes in the care of hospital ized patients. The

American He ritage D ictiona ry (4th e d. 20 00) . As a ho spitalist, a p hysician tre ats patie nts who are alre ady in the hosp ital, not p atients wh o spe cifically see k out the physicia n.

2 Vete rans A dmin istration h osp itals are fed erally fund ed fac ilitie s that provide treat ment only to persons meeting cert ain eli gibi li ty requi rement s. In ge neral , a pe rson must ha ve been honorabl y dis charged from mil itar y ser vice (con tinued ...)
-2- offer of employ

ment to the defendant, Dr. David Udom (Dr. Udom), to practice internal medicine at MMC. Dr. Udom verbally ac cepted the offer. To memorialize this agree ment, MMC presented Dr. Udom with an “employme ntand stock transfer agree ment” (the agreement) for his review and signature.

The agreement provided Dr. Udom with an initial two-y ear term of employment at

MMC, with MM C having the option of extending the contract at the expiration of those two y ears. The agreement also contained a non-c ompete provision which stated: [u]pon an y te rm in at io n o f t hi s A gr ee me nt

. . . , th e E mp lo ye e agree s not to enga ge inthe practice of medicine within a twenty-five (25) mile radius of the public square of Mur freesboro, Tennessee for a period of eig hteen (18) months following such termination.

The agreement further conta ined a “co mpensation for competition” provision, referred to by the parties as a “buy- out” clause. This buy -out cla use provi ded that t

he non-c ompete

restrictions cited above would be waived “upon the pay ment by the

Employee to the Corpora tion of anamount equal to twelve times the most recent Initial Monthly

Salary . . . and the r

eimbursement of the Corporation for any moving

expenses paid to, or on behalf of, the Employ ee.”

Dr. Udom reviewed the proposed agre ement, signed it, and returned it to MMC on or about April 4, 2000. He began work on September 1, 2000, and pr acticed medicine in the Interna l Medicine Department until August of 2002.

OnAugust

13, 2002, as his initial two-year ter m of employment was about to expire, MMC advised Dr. Udom that it would not renew his contract and that August 31, 2002, would be h is last day of employment. After

being informed of MMC’s decision, Dr. Udom met wi th Ro be rt Ha rd y, MMC’s Chief Executive Officer, who advised Dr. Udom that MMC would

enforc e the non- compete provisio n. In early September, Dr. Udom met with Dr. D. Scott Corlew, MMC’s President and Chairmanof the Board, to discuss whether the non-co mpete clause would allow Dr. Udom t

o become a ho spi talist 1 at Mid dle Te nness ee Medi cal Ce nter ( MTMC ). He wa s tol d that takin g a position a s a

hospitalis t would

be in breach of the non-compete provision, even thoug h Dr. Udom would not be dir

ectly competin

g for patient s with MMC. D r. Udom wa s also told d uring th is meeting that he could not accept a position at the Alvin C. York VeteransAdministration Medical Center in Murfre esboro de spite the f act that t his facil ity d

id not dire ctly

compete for patie nts with MMC. 2 In addition, Dr. Udom was informed that the non-compete provision

would re quire him t

o2 (.

.. continued)

to be elig ible for treatme nt at a VA faci li ty . I n addi ti on, l engt h of s ervi ce, n atur e of

disab ility, income level an d ava ilable VA resou rces a lso facto r into wh at treatm ent is ava ilable. See 38 U .S.C.A . § 17 10 ( 200 3).
-3- relinquish his admitt

ing priv ileges at MTMC.

Dr. Udom states in an affidavit co ntain ed in the r ecord that the co venant no t to compete would preclud e him from

practic ing medi cine at a ll of the ho spitals in the Murfreesboro area, including MTMC in Murf reesbor o, Stone Cr

est Me dical Center

in Smyrna, Alvin C. York VA Medical Center in Murfreesboro and Su mm it Hos pi tal in Nas hvi ll e. It would also restrict him from practicing in several communities surrounding Murfreesboro, inc lud ing La Ver gne, Antioch, Brentwood, Shelby

ville, Woodbury, L ascassas and Leba non.

OnOctober 10, 2002, Dr. Udom sent a letter to MMC, infor

ming it of his intenti on to open a medical p

ractice inSmyrna, Tennesse e. In a second letter dated November 18, 2002, he reiterated his intent and al so informe d MMC that he did not intend to utilize the “buy-out” clause of the employ ment ag reemen t.

OnDecember 10, 2002, MMC filed a complaint against Dr. Udom seeki n g to enjo in him fromviolating

the non-c ompete pr

ovision of

his employ

ment ag reemen t. Following a he aring i

n chancery court on January 10, 2003, MMC wasgranted a temporary injunction enjoining Dr. Udom fromestab lish ing a medical practice in Smyrna , Tennessee, or engaging in the practice of medicine at MTMC in Murfreesboro, Tennessee. The court ordered MMC to file a $120,000.00 injunction bond and also permitted Dr. Udom to deposit $120,000.00 with the Clerk & Master’s Office as satisf acti on of the “b

uy- out” cla

use. I n addition , Dr. Udo m was gr anted pe rmission to

file a Rul e 9 interlocutory appe al.

OnFebruary

19, 2003, Dr. Udom opened a solopractice in Smyrna , Tennessee. His office was approximately fiftee

n miles from the public square of Murfreesboro, Tenne ssee.

Inthe Court of Appeals, Dr. Udom argued that (1) the trial court erred in gra nting MMC the temporary

injunction

and (2) t

hat the c ovenant n

ot to co mpete is unenforc eable be cause it is
unreasonablein the circumstance, does not secure a protectable interest, is over-broad, and is agai nst public policy. The Court of Appe als rever sed the grant of the temporary injunction against Dr. Udom but affirmed the holding that the covenant not to compete was e nforce ab le. The Court of Appeal s remand ed the ca se to the Chancery Court to de

termine “ the rea sonableness and sp ecific amount to be used in satisfying the buy-out provision.”

We grante d Dr. Udom permissi on to appe al to dete rmine whe

ther the covena nt not to compete is enforceable. The issue of whether c o ven ants not to compete are enf orceab le aga

inst phy sicians is

one of fi rst impre ssion for

this Court.-4- ANALYSIS

Our review of the trial court’s conc lusions of la w is de novo on the record with no presumpt io n of correctne ss. Tenn. R. App. P. 13 (d); Union Carbide Corp. v. Huddleston , 854 S.W.2d 87, 91 (Tenn. 1993). The trial court’s findings of fa ct, however, are acco mp an ie d b y a presumption of correctness, unless the evidence pre ponderates otherwise. Id.

MMC argue s that it ha s a prote ctable b usiness in te r est in ret

aining i ts patient base. MMC maintains that the covenant not to compete should be e nforced because the unique one-on-one relation ship between a phy sician and patient placed Dr. Udom in a heightene d position to affect MMC’s ability to retain its patients when he lef t. MMC further argues tha t it h as a prot

ectable businessinterest in the su bstantial resources it has expended in providing training, offic e space, administrative support a

nd salar y to Dr. Udom. In response, Dr. Udom ar gues that the covenant not to compete is unreasonable, overly broad, and against public policy

. I. Covenants Not to Compete

Ingeneral, covenants not to compete ar e disfavored in Tennessee. See Hasty v. R ent -ADriver, Inc. , 671 S.W.2d 471, 472 (Tenn. 1984). These covenants are viewed as a restraint of trade,
a nd as such, are co nstrued strictly in favor of the employee. Id. Howeve r, if ther e is a legitimate businessinterest to be protected and the time and territorial limitations are rea sonable then non

compete agreements are enf

orceable. Id. at 473. Fac tors rele vant to wh ether a

covena nt is reasonable include: (1) theconsider ation supp orting t

he cove nant; (2) the thre atened d

anger to the employer in the absence of the covenant; (3) the economic hardship imposed on the employee by the
covena nt; and (4) w

hether t he cove nant is inim

ical t o th e public interest. Id. at 472-73 (citing Allright Auto Parks, Inc. v. Ber

ry , 409 S.W.2d 361, 363 (Tenn. 1966)). Also, the time and territorial limits must be no greater than necessar y to protect the busine ss in terest of the employe r. Allright Auto Parks , 409 S.W.2d at 363.

Covenant s not to comp ete that i mplicate important

public policy issues are

even mor e strictl y construed. See Spie ge l v. Thomas , Mann & S mith, P.C. , 811 S.W.2d 528, 529-30 (Tenn. 1991); Allright Auto Parks , 409 S.W.2d a t 364; Med. Educ . Assistan ce Corp. v. State , 19 S.W.3d 803, 813 (Tenn. Ct. App. 1999) . For exa mple , in Spiegel , a l aw firm attempted to enforce the terms of a

“ deferre d compensation agreement,” which wa s in essence a non-compete agr eement, against an attorney formerl y employed by

the firm. 811 S.W.2d at 529. This Court analyzed the validity of the agreement

in terms of its impact

on the public good. Id. at 530. B ecause “[c]once rn for th e public good is inhere nt in the pu

rposes” underly ing the e thics rule s gover

nin g the l egal profession, we looked to the legal ethics rules to guide our analysis. Id. We noted the American Bar Association’s position that restrictive covenants were unethic al. Id. The ABA’s Ethics Committee views the practice of law as unlike a common business or trade because la wyers de al with clients, not merchandise, and lawye

rs have a du

ty to make l egal counsel available to the public. Id. We concluded

that to en force t

he claus e in question would violate these ethical standards and therefore held the clause void as against public policy

. Id. at 531.3 The A merican M edical Asso ciation, founded in 1847 , is the nation’s largest association of physicians,

advocating for the pro fessio n, physic ians, and patien ts. It was fou nde d for th e pur pos e of “scie ntific adv ance men t, standards for medic al educat ion, l aunchin g a program of medical eth ics , [a nd] improved publi c healt h.” See www. amaassn.org/ama/pub/category/ 12982 .html (Last updated M arch 10, 2005 ).

-5- II. Public Policy Considerations in Restrictions on the Practice of Medicine

Muchlike restrictive covenants in the practice of law, r estrictive covenants in the medical profession

r a ise concerns regarding the public good. Having a gr eater number of phy sicians practicing in a community benefits the public by providing greater

access to health care. Increased competition for patients tends to improve quality of care and keep costs affordable. Furthermore,
a person has a right to choose his or her phy sician and to continue an on-going profe ssional relation ship with thatphysician. See Med. Educ. Assistance Corp. , 19 S.W.3d at 81 6; see also AMA Code of Medical Ethics § E-9.06 (1977). Enforcing c ovenants not to compete ag ainst physici ans could impair or even deny this right altogether.

Since 1980 the Ameri can Medi cal Association (AMA) 3 has taken the position that phy sicians’ non -compete agree ments impa

ct nega tively on health

care a nd are no t in the pub lic interest

. See AMA Code o f Medica l Ethics § E-9.02 (1998). Although stopping short of comple

tely prohibiting covena

nts not to c ompete, t

he AMA str

ongly discoura ges t hem. I d. The AMA has maintained

the view for the past twenty-five ye ars that non-compete agree m ents “restrict competition, disrupt continuity of care , and potentially deprive the public of medical services.” Id. The AMA has a

lso found t

hat a person’s rig

ht to choose a physician and f ree competition among physicians are

“prerequisites of ethical practice.” Id. at § E-9.06.

I t is important to note that prior to 1980 the AMA took a more lenient stance towards phy sicians’ non-compete agreements. The official AMA position from 1960 until 1980 stated there
was no ethical proscription against a “reasona ble agreement

not to practice within a certain area f or a certain time, if it is knowingly ma de and understood .” AMA, Princ iples of Me dical Eth ics, Opinions and Reports of the Judicial Council 25 (1960). Despite the AMA’s stated position that non-compete agreements among physicians are

not inthe public interest, we find it curious that a majority of st at es co nt in ue to ap pl y a reasona bleness standard in evaluating non-compete agr eements between phy sicians, similar to the evaluat i on of
covena nts in commercial contexts. See, e .g. , Canfield v. Spear , 254 N.E.2d 4 33 (I ll. 1969) (enforcing

a covenant which prohibited a dermatologist from pra cticing within twenty- five miles of former employer); Dunelan

d Emerg ency

Phys ician’s M ed. Grou

p, P.C. v. Brunk , 723 N.E.2d 963 (Ind. Ct. App. 2000) (holding a covenant unenforce able upon concluding that employer had f

ailed to show a pr

otectab le busine ss intere st); Weber v. Tillman9 13 P.2 d 84 (K an. 19 96) (en forci ng a covenant not to compete upon

concludi ng its re striction s were r

easonab le); Cmty. Hosp. Group, I nc. v. More , 869 A.2d 884 (N.J. 2005) (enforcing with modifications a non-compete ag reement upon determining that employer had a protectable business interest and restri ctions wer e reasonable); Karlin v. Weinberg , 390 A.2d 1161 (N.J. 1978) (enf orcing a covena

nt not to co mpete ag ainst a-6-

physician upon finding that the e mployer h ad a legitimate business interest in protecting patient relation ships)

. We note that the large st number of case s dealing

with phy sician’s covena nts not to compete were decided prior to the AMA’s a doption of its current

ethical guidelines in 1980. See, e.g. , Odess v. Taylor , 211 So. 2d 8 05 (Ala. 1968); Canfield v. Spear , 254 N.E.2d 433 (Ill. 1969) ; Cogley Clinic v. Martini , 112 N.W.2d 678 (I owa 1962) ; Lareauv. O’Nan , 3 55 S. W. 2d 67 9 ( Ky. 1962); Willman v. Beheler , 499 S.W.2d 770 (Mo. 1973) ; Ellis v. M cDaniel , 596 P.2d 222 (Nev. 1979); Karlin v. Weinberg , 39 0 A. 2d 1 161 (N. J. 1978); Lovelace Clinic v. Murphy , 417 P.2d 450 (N.M. 1966); Gelder Med. Group v. Webber , 363 N.E.2 d 573 (N.Y . 1977); New Castl e Orthope dic Assoc. v. Burns , 392 A.2d 1383, (Pa. 1978); Oudenhoven v. Nishioka , 190 N.W.2d 920 (Wis. 1971)

.

We further find it most surprising that several of the jurisdictions to have addressed this issue since 1980 ha ve place d little emp hasis on th e gene

ral ethic al conce

rns cited by t he AMA in discouraging

phy sicians’ non-compete agreements. See Raymundo v. Hammond Clinic Ass’n , 449 N.E.2d 276, 280-81 (Ind. 1983) (dismissing as mer ely “self- serv ing ” the argument that ethical considerations should prohibit enforcement of such coven ants a nd offering no discussion of the AMA’s stance on the issue.) ; see also Rash v. Toc coa Clinic Med. Asso cs. , 320 S.E.2d 170 (Ga. 1984); Duneland Emergenc y Phy sicia n’s Med. Group, P.C., v. Brunk , 723 N.E. 2d 963 (I nd. Ct. App. 2000); Weber

v. Tillman 913 P.2d 84 (

Kan. 1996 ); Gant

v. Hyg eia Facilities Found. I nc. , 384 S.E.2d 842 (W.Va. 1989)

. Nevertheless, several states, emphasizing public policy concerns, have sub

je cted the se covena nts to closer

scrutiny than non-compete agreements in other c ontexts. See Valley Med. Specialists v. Farber , 982 P.2d1277 ( Ariz. 1999) (st

ating th at the phy

sician/pa tient rel ationship

is “special and entitled to unique protection”); Ire dell Dig estive Di sease Clinic v. Pet rozza , 373 S.E.2d 449, 455 (N.C. Ct. App 1988) (stating that with respect to the doctor/patient relationship, the court
was “extremely hesitant

to deny the patient-c onsumer any choice w hatsoeve r”); Ohio Urology , Inc.,
v. Poll , 594 N.E.2 d 1027 (Oh io Ct. App. 19 91) (sta ting tha t the phy sician/pa tient rel ationship

is entitled to unique protection, therefore phy sic ian’s non -compet e agre ements wi ll be “str ictly construed” for rea sonableness); see also Ellis v. McDaniel , 596 P.2d 222 (Nev. 1979); Statesvill e Med. Group, P.A. v. Dickey , 418 S.E.2d 256 (N.C. Ct. App. 1992).
Also, three states have in recent y ears enacted statut es totally pr ohibiting non-comp ete clauses in phy sicians c ontract s. See Colo. Rev. Stat. Ann. § 8-2-113(3) (2003); Del. Code Ann. tit. 6, § 2707 (1993); Mass. Gen. Laws Ann. c h. 112, § 12X

(1991). Additionall

y, a ntitrust sta

tutes in several state s, alt hough notenacted specifically for this purpose, have been interpreted as prohibiting non-comp ete clauses between phy sicians. See Odess v. Taylor , 211 So. 2d805 (Ala . 1968); Bosley Med. Group v. Abramson , 207 Cal. Rptr. 477 (Ca l. Ct. App. 1 984); Bergh v. Stephens , 175 So. 2d 787 (Fla. D ist. Ct. App . 1965); Gauthier v. Magee , 141 So. 2d837 (L a. Ct. App. 1962); W. Montana Clinic v . Jacobson , 544 P.2d 807(Mont. 197 6); Spectrum Emergency Care, Inc. v. St. Joseph’s4 For a more in-depth review of t he approaches taken by jurisdicti ons nationwide regarding the i ssue of noncom pete agree men ts and p hysician c ontra cts see F erdin and S. T inio, An nota tion, V ali dity and Const ruct ion of Con tr ac tu al Res tr ic ti ons On Right of Medical Practitioner t o Practice, Incident to Employment Agreement , 62 A.L. R. 3d 1 014 (20 04) ; Arthu r S. D i Dio , Th e Leg al Imp lications of N onc omp etition A greem ents in Phys ician C ontra cts , 20 J. Lega l. Me d. 45 7 (1 999 ); Pau la Be rg, Jud icia l E nforceme nt of Cove nants not to Co mpete B etween P hysicians: Protec ting Docto rs’ Interests at Patients’ Expense , 45 Rut gers L. Rev . 1 ( 1992)

.

5 A “facu lty

practi ce plan” i s a non- profit profess ional corporati on aff ili at ed with a medical scho ol whose purpo se is to al low ph ysi cian fac ult y member s of

the schoolto con duct a cl ini cal pract ice in a ddit ion to th ei r faculty duties. See Med . Educ. Assistance Corp , 19 S.W .3d at 806. M aintaini ng an active practi ce through the facul ty pra ctic e plan allows physi cians to supplement thei r base salary f rom the med ical scho ol with o ther inco me. Id. Facult y pract ice plans also giv e stude nts and reside nt physic ians a p lace to gain va luable hand s-on ex perie nce. Id.

6 In fact, if t

he physicia n has practiced in t he county for fi ve or more years, the employer may rest rict t he physic ian’s rig ht t o solicit or treat formerpatients f

or one year. Tenn. Code Ann. 63-6- 204(d)(2)(b). If t he physi cian has prac ticed in th e cou nty for less tha n five yea rs, the em ploye r may o nly restrict the physicia n’s right to direc tly solicit form er pa tients for o ne yea r. Id. at (d)(2)(C).
-7- Hosp. & Health Ctr. , 479 N.W.2d 848 (N.D. 1992). 4

III. Tennessee Code Annotated Section 63-6-204 (Supp. 1998)

No Tenness ee statu

te curr ently prohibits c ovenants

not to comp ete betw een phy sicians. Howe ver, ourlegislature has weighed in on the issue to some extent by enacting Tennessee Code A nnotated

section 6 3-6-204 ( Supp. 1998) . This stat ute spec ifically

allows suc

h non-co mpete covenant s in two limited circumstances and with closely prescribed restrictions. See Tenn. Code Ann. § 63-6-204(d), (e) (Supp. 1998). I n adopting this statute in 1997, our legislature recog nized two situations in which the public i nterest weighed

in favor of enfor cing covenants n

ot to compe

te agains tphy sicians: ( 1) when t he employ

er is a hospital or an affiliate of a hospital, and (2) when the employer is a “ faculty pra ctice plan” 5 associated with a medical school. Id. at (d)(2), (e)(1), (2).

While p ermitting physician covenant s not to compete in the two limited circumstances above, the statute limits the restrictions thatmay be imposed in either of these situations . For exa

mple, if the e mployer is a hospital and has made a bona fide purchase of the phy sician’s practice , th e maximum geographical re striction in a non-compete agreement is (1) the c ounty in which the prim ary practic e si te is located or (2) a ten mile radius from this site, whichever is g reater. Id. at (d)(2)(A)(I). Also, the maximum duration of the restriction is two years. Id. at (d)(2)(A)(ii). For physicianswhose practices havenot been purchased by the employer, the e

mployer may

only restrict the phy sician’s

right to treat or solicit former pa

tients (r ather th an all pa

tients) , and this only for a maximum of one yea

r. Id. at (d)(2)(B), (C). 6 Further more, if a

phy sician’s

emplo yment i s terminated

by the employ

er fo r any re ason other than “breach by the employee,”

then allnoncompete restrictions are void. Id. at (d)(3).

Non-com pete provisions involving a faculty practice plan may

completely restricta former employee/phy

sician’s right to practice medicine , but only within the county in which the primary practice site is l ocated or a t en mile radius, whichever is larger, a nd for a maximum time of two7 W hile Tenness ee Code Annot ated sect ion 63- 6-204 had been enact ed prior t o the t ime Med. Educ. Assist ance

Corp. was d ecided, it did not apply because t he employment agreement at issue had been entered int o prior to the enact ment of t he st atut e. 19 S. W.3d at 813. However, the Court of Appeals did com ment that t he statute wa s simp ly a cod ification o f the existing law. Id.
-8- ye ars. I d. at (e)(2)(A), (B). The statute does, however, allow the contracting parties to ag ree t o further restrictions exceeding these limits if such restrictions are “re asonable and not inimical to the public interest.” Id. at (e)(6). Impor tantly, however, the

statute does not permit non-c ompe te agree ments in either the hospital employer c ircumstance or the faculty pr

actice plan situation when physiciansare pra

cticing ophthalmo logy , radiolo gy , path olog y, anesthesiolog y or emer

gency medicine. Further , non-co mpete ag reemen ts are no t permitte d in eithe r situation fo r physicians practicing primary ca

re, obstetrics, or pediatrics in an area whic h has a shortage o f these s ervice s. Id. at (e)(5).

The legisla

ture, in a dopting t h is statute, f

ound that f

aculty practic e plans w ere ent

itled to unique protection due to “special facts above and beyond ordinar

y competition”

that would give an unfair competitive advantag e to phy si cians who were f ormer e mploy ees of f aculty practic e plans. Id. at (e )( 1) . T he Ge ne ra l A ss em bl y stat ed that the “faculty practice plan’s right to be free from unfair competition from a former employ ed physician outweig

hs any financ ial hardship to the f ormer employed phy

sician resulting from the operation of any such restrictive covenant.” Id.

The rationale behind

providing

special protect ion to faculty

practic e plans w as discus sed in Med. Educ. Assistance Corp. v. State , 19 S.W.3d 803 (Tenn. Ct. App. 1999). 7 The court identified two competing public inte rests in e valuatin g the enforcea

bility of a non- compete

covenant involving
a faculty pra

ctice plan. Id. at 816 . The f irst inter est wa s “the righ t of a patient to choose her physician and to be a

llowed tocontinue that relationship even after the phy sician leaves her place of employment.” Id. In c ompetition with this w a s “the public’s interest in having an accre dited, quali fied, and wel l staf

fed med ical c ollege in East Tennessee.” Id. Weighing these two interest s, the court ulti

mately held that the coven ant was enforceable beca use of the public benefit derived from having phy sicians trained by qua lified faculty. Id.

When Tennessee Code Annotated section 63-6-204 was enacted, it was well established that
covena nts not to compete were disfavored in Tennessee. See Hasty , 671 S.W.2d at 472

. Ad di ti on al ly, covenants not to compete between at to rn eys had bee

n prohibit ed for a number of

ye ars. See Spiegel , 811 S.W.2d at 529-30. “[T]he Legislature is pre sumed to know the state of the law at the time it passes legislation.” State v. Mixon , 983 S.W.2d 661, 669 (Tenn. 1999 ); see Cronin v. Howe , 906 S.W.2d 910, 912 (Tenn. 1995). Thus, knowing that covenants not to compete were disfavored

generally , and that they we re prohibited completely

in a profession

comparable to the practice of medicine, the legislature chose to affirmatively provide for covenants not to compete for phy sicians, but only

in very limited cir

cumstanc es and wi

th specif ic ally prescribed limits on the scope of those covenants. We find it significan t that the le gislatu

re chose not to valid

ate all restrictive covenants applying to physicians, especia

lly given that the le gislature presumably knew that this Court had found all such covenants to be void as against public policy in a sim ilar-9-

profession.

Inanaly zing this is sue, we s ee no pra ctical di ffere

nce betw een the p

racti ce of la

w and the practice of medicine. Both professions involve a public i nterest general ly

not present in commercial contexts. Both

entail a duty on the par

t of practitioners to make their services available to the public. Also, both are

marked by a

relation ship between the professional and the patient or client that goes well bey ond mere ly providing

goods or service s. These

relation ships a

re “consens ual, hig

hly fiduciary and peculiarly

dependant on the patient’s or client’s trust and confidence in the physician consulted or attorney r

etained.” Karlin , 39 0 A. 2d 1 161 , 11 71 ( Smit h, J. , d issenting

). In both contexts, restric tive cove

nants have a d

estructi ve impac t on those r

elationsh ips. The rules governing other businesses and

trades are not relevant to either the leg al or medical profession, as both often require the disclosure of private and confidential information such as, in the context of physician and patient, persona

l medical or family history . We agr

ee with the dissent of Justice Smith in Shankman v. Coastal Psychiatric Assocs , 368 S.E.2 d 753 (Ga . 1988) in w hich he st ated:

The medical profession, like the legal profession, is one that of necessity must have the faith and confidence of its patients ( clients)in order to give e ffectiv e treatment. When a patient (client) has entrusted confidential information to the doctor (la wyer) this create s a rela

tionship of

confide nce and the patie nt (clien t) does no t wish to have that relationship involuntarily terminated.

368 S.E. 2d at 754 (Smith, J., dissenting). The right of a person to choose the phy sician that he or she believes is best able to provide treatment is so fundamental that we can not

allow it to be denied because of an employer ’s res tri ctive covenant. Were we to hold otherwise, many of Dr. Udom’s patients would be denied the opportunity to choose whether o rnot they wanted to continue be ing treated by him. These

patients, who have entrusted confidential information to Dr. Udom by virtue of their hig hly fiducia ry relation ship with hi

m, should no t h ave tha t relationship invol untarily terminated.

CONCLUSION Due to the important public policy consider ations implicated

by phys icians’ covenants not to compete, along

with the ethical problems raised by them, and our state legislature’s decision not to statutori ly v alidate a

ll such co venants, we conclude that non-compete agreements such a s the one at issue in the pre sent case are inimical to public policy and unenforceable. Public policy considerations such as th e right to free dom of cho ice in

phy sicians, the right to continue an on-going relations hip with a p hysician, and the be nefits derived from having an increa sed number of physicianspracticing in any given co mmunity

all outweigh the business interests of an employ er. Inaddition, we are guided by the American Medical Assoc iati on’s ethical standards which view
covena nts not to comp ete as a

gainst p ublic polic

y, b ecause

accord ing to the AMA, such

agree ments “restri ct competition, disrupt continuity of care, a nd potentially deprive the public of medical services.” Also pers

uasive is the fac t that our l egisla

ture has electe d to affir

matively provide for such-10-

covena nts, but in very limited co ntexts. Fo r these reasons, we hold that except for restrictions specific ally

provided for by statute, c ovenants

not to comp ete are une

nforce able ag ainst phy

sicians.

Costs of this appeal are taxed to the appellee , Murf reesbor o Medica l Clinic, P.A ., or its
su re ti es , f or wh ic h e xe cu ti on ma y is su e i f n ec es sa ry.

_____________________________ WIL LI AM M. BARK

ER, JUSTI CE