QUESTION:   We understand that the enforceability of a restrictive covenant depends on state law. In our state, the courts will enforce a covenant in an acquisition and will generally enforce a covenant in an employment agreement. However, a question has arisen as to whether the courts will enforce a covenant in an agreement with an independent contractor in the same manner as it would if the physician were an employee.

ANSWER:   As you correctly point out, whether a court will enforce any type of restrictive covenant depends on your state law. Most (if not all) states will enforce a restrictive covenant that is part of an acquisition of a business. Most states will also enforce a covenant that is reasonable in scope and geographic extent during the term of employment or during the term of an agreement with an independent contractor. Where courts differ is whether a court will enforce a restrictive covenant following the termination of the employment/services agreement. However, the enforceability of a covenant should not depend on whether a physician is an employee or an independent contractor.

In Pennsylvania, for example, the Pennsylvania Superior Court has specifically held that restrictive covenants are applicable “beyond the tradition employer/employee relationship” and has held that “a valid restrictive covenant can be imposed on an independent contractor…restrictive covenants should not be set aside…merely because [a party]…is an independent contractor rather than an employee.” This decision was based on a Pennsylvania Supreme Court decision that a restrictive covenant in a franchise relationship was enforceable and Section 516(f) of the First Restatement of Contracts upholding a restrictive covenant by “an assistant, servant or agent not to compete with his employer or principal during the term of the employment, or agency or thereafter….” (Emphasis added.)

Therefore, the fact that a physician is an independent contractor should have no effect on the validity or the enforceability of an otherwise valid and enforceable restrictive covenant.