February 7, 2019

Non-Competes Not Enforceable Without a Protectable Interest; Great Lakes Anesthesia, P.C. v. O’Bryan

Category: Indianapolis Law Club | Author: | Share:

It is fairly common for employers to use have their employees sign non-competition agreements. But this does not mean that an employee will always be bound by those agreements. For example, this case shows that an agreement not to compete is not binding if there is no real purpose for that agreement.

Great Lakes provides anesthesia, pain management, and obstetric services to hospitals and surgery centers in northeastern Indiana. The O’Bryans are two married certified registered nurse anesthetists who lived in Georgia. Great Lakes recruited the O’Bryans for positions in Grant County. Great Lakes was contracted with Marion Anesthesiologists, which had a contract with Marion General Hospital. Great Lakes persuaded the O’Bryans to move to Grant County to take a position at the Hospital. The O’Bryans were repeatedly told that Great Lakes had a contractual relationship with the Hospital.

The O’Bryans signed employment agreements with Great Lakes that included a noncompete clause. The clause prevented the O’Bryans from providing anesthesia services for 24 months within 25 miles of any assigned facility. The O’Bryans began working for Great Lakes in November 2016 and were assigned primarily to the Hospital.

In January 2017, Great Lakes learned that it had competition for a contract directly with the Hospital to provide anesthesia services at the Hospital. It then proceeded to drive a hard bargain with the Hospital by delivering an ultimatum and terminating its contract with Marion Anesthesiologists. The Hospital did not take kindly to these negotiating tactics and did not sign a new contract with Great Lakes, which meant that the O’Bryans could no longer work at the Hospital.

After learning of this, the O’Bryans asked to be released from their agreements, but Great Lakes refused. Great Lakes’ competitor, AAFW, offered to buy out the O’Bryans’ employment agreements, and Great Lakes again refused. The O’Bryans then resigned from Great Lakes and provided services to the Hospital through AAFW.

A lawsuit ensued, and Great Lakes moved to preliminarily enjoin the O’Bryans from working at the Hospital. The trial court denied the motion and Great Lakes appealed.

On appeal, the Court looked to whether Great Lakes had a protectable interest in enforcing the non-compete clauses after it ended its ability to provide anesthesia services to the Hospital. Great Lakes argued that it did have such an interest because the O’Bryans were hired to develop goodwill with the Hospital and should not be allowed to leverage that goodwill for their own benefit. The Court disagreed, noting that the goodwill an employee can develop changes from industry to industry.

Great Lakes’ only customer was MA. Great Lakes expected the O’Bryans to provide “excellent service” and be “effective liaisons with physicians.” One would reasonably anticipate that Great Lakes’ contractual/customer relationship with MA would be maintained if the O’Bryans performed according to expectation. But Great Lakes does not point to evidence that the O’Bryans were hired to increase a customer base, akin to a traditional salesman or even a liaison for solicitation purposes, such as Norlund. Nor were the O’Bryans in partnership with Great Lakes or engaged in profit-sharing.

And the Court also rejected the argument that the non-compete clauses should be enforced to allow Great Lakes to compete for the Hospital’s services in the future.

However, when contract negotiations turned sour, Great Lakes divested itself of an interest in performing services for its client, MA, at the Hospital. Having terminated its interest, Great Lakes insists that it has a right to protect a possible future relationship with the Hospital. This is not akin to a situation where customers have been lured away and might return. The speculation that Great Lakes might be offered a future contract by the Hospital is tenuous, at best, given that Great Lakes deliberately discontinued services to MA early – despite potential consequences to Hospital patients – as a bargaining chip. The trial court did not err as a matter of law in finding that Great Lakes had no protectable interest in the provision of anesthesia services at the Hospital.

Given this conclusion, there was not a reasonable probability that Great Lakes would be able to enforce the non-compete clauses against the O’Bryans, and the trial court’s decision was affirmed.

Lessons:

  1. An employer must have a protectable interest in order to enforce a covenant not to compete.
  2. A company that threatens to terminate a contract with a customer as a bargaining chip may not be able to enforce non-compete clauses against employees who work with that customer.