I still remember the smile on Steve Cunningham’s face. High School summer vacation. Thoughts of sand, sun, and surf. Yet back to reality. We were applying for jobs at Magic Mountain, an amusement park. Employees got free passes to the park.
Ride along with Mark while he solves the physician retirement crisis.
Originally published in 2015, this is one of my most popular posts in terms of contacts from clients and friends of the firm. Plus, it makes me smile when I read it. You’ll smile, too, which makes the lessons even more valuable. – Mark
Take a seat and relax while you ride along with Mark and discuss the problem of expecting a valuable answer to the completely wrong question.
Ride along with Mark as he discusses the best way to deal with disruptive employees.
Has your medical group put themselves in a position where they can be easily taken over legally and cheaply?
There’s a lesson in defense to be learned from the undercurrent of a lawsuit now playing out in Tennessee, in which the second largest hospital chain in the U.S., Community Health Systems (“CHS”) is suing Brian Bauer, the (fired) former CEO of its Fort Wayne, Indiana based Lutheran Health Network, seeking to prevent him from working with IU Health, a competitor in the Fort Wayne market. Following his firing by CHS, Bauer joined IU Health as CEO of its Fort Wayne unit.
Among the allegations are that Bauer, who apparently was not bound to any covenant not to compete, shared confidential and proprietary information with IU Health. CHS claims that sharing that information violates the terms of a CHS stock option agreement once in favor of Bauer. They also claim that Bauer violated the terms of that agreement’s non-disparagement clause.
Most interesting for our purposes is the fact that CHS is seeking an injunction preventing Bauer from engaging in any role with IU Health because Bauer inevitably could or would disclose or use CHS’ confidential or proprietary information.
According to an article in the Fort Wayne News-Sentinel, Bauer contends, among other things, that CHS’ lawsuit is “an attempt to sabotage that business relationship (between Bauer and IU Health) and curtail any potential competition.”
Last week, the trial court judge denied Bauer’s motion to dismiss the lawsuit. The case is now moving forward, with CHS’ motion for a temporary injunction to be heard soon. If granted, the temporary injunction could effectively be a knock-out blow to Bauer, as he’d be sidelined, unable to work for IU Health (and, potentially for any other competitor) for the months, if not years, until the final outcome of the case.
What you need to know for your own business purposes:
1. Covenants not to compete are creatures of state law. Some states favor their enforcement, others disfavor them, and still others don’t much like them but will still enforce reasonable restrictions.
2. In states that allow enforcement of covenants not compete, consider their use in your agreements with key players. Carefully draft them to increase the odds of enforcement. In some states, Texas for example, physician covenants not to compete are enforceable only if they comply with highly technical requirements.
3. In any state, even if it favors the enforcement of covenants not to compete and you use them in your agreements, consider the use of other key anti-competitive restrictions. There are many available strategies, both in terms of the way that agreements are structured within your entity, between your entity and its team members, and between your entity and third parties. For example, note that CHS’ alleged restrictions appear in a stock option agreement, not the typical place where they’d be found, and one in which, I’d assume, eyes get glassy with dancing dollar signs.
4. The use of litigation as a tool to project power is a fact of life. Don’t assume that trite sayings such as “speak truth to power” have much value other than as bumper stickers or motivational posters.
Comment or contact me if you’d like to discuss this post.
Mark F. Weiss
Watch what you are negotiating over - don't start a bidding war over nothing!