Parikh v. Family Care Center, Inc.
641 S.E.2d 98, 273 Va. 284, 2007 Va. LEXIS 37 (2007)
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Rule of Law:
A non-professional corporation, which is not licensed and is therefore legally barred from engaging in the practice of a licensed profession like medicine, does not have a legitimate business interest to enforce a covenant not to compete that restricts a former licensed employee from engaging in that same professional practice.
Facts:
- In 1993, Dr. Nipun Parikh, a licensed physician, entered into an employment agreement with the Family Care Center, Inc., which was then a professional corporation owned by a licensed physician.
- The agreement contained a clause prohibiting Dr. Parikh from engaging in a competing medical practice within a 20-mile radius for three years after termination.
- In 2003, the owner of Family Care Center died, and his non-physician widow became the sole shareholder.
- Upon the owner's death, Family Care Center's legal status converted by operation of law from a professional corporation to a non-professional corporation.
- On December 31, 2003, Dr. Parikh terminated his employment with the non-professional corporation.
- Shortly thereafter, Dr. Parikh began working as a physician at another medical facility located within one mile of the Family Care Center.
Procedural Posture:
- The Family Care Center, Inc. filed a motion for judgment against Nipun O. Parikh, M.D., in a Virginia circuit court (trial court).
- Dr. Parikh filed a motion to dismiss, arguing Family Care Center lacked a legitimate business interest to enforce the covenant, which the circuit court denied.
- Following a bench trial, the circuit court found for the Family Care Center and entered a judgment against Dr. Parikh for $210,000.
- Dr. Parikh (appellant) appealed the judgment of the circuit court to the Supreme Court of Virginia.
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Issue:
Does a non-professional corporation, which is legally prohibited from practicing medicine, have a legitimate business interest in enforcing a covenant not to compete that restricts a former employee-physician from practicing medicine?
Opinions:
Majority - Chief Justice Leroy R. Hassell, Sr.
No. A non-professional corporation that is legally barred from practicing medicine does not have a legitimate business interest to protect through a covenant not to compete against a former employee-physician. The court's reasoning is based on Virginia statutes that make it unlawful for any entity to practice medicine without a license from the Board of Medicine. The employment agreement explicitly framed the competition in terms of the 'practice of medicine.' Since the Family Care Center, as a non-professional corporation, cannot legally engage in the 'practice of medicine,' it cannot be a competitor to Dr. Parikh in that practice. Therefore, it lacks the requisite legitimate business interest to enforce a covenant designed to prevent such competition.
Analysis:
This decision significantly narrows the enforceability of non-compete agreements for non-professional corporate employers in licensed professions like medicine. It establishes that the 'legitimate business interest' required for enforcement must be in an activity the employer is legally permitted to perform. The ruling implies that corporate entities that employ licensed professionals but are not themselves licensed to practice that profession may be unable to enforce non-competes framed around the 'practice' of that profession. Consequently, such employers must draft restrictive covenants carefully, focusing on protectable interests other than direct competition in the licensed professional activity itself.
