Previous articles have focused on several ways the court will not enforce a contract because of some misconduct or status of a party (infancy, mental capacity, duress, etc.). However, even when those other traits are lacking, that is to say, when a contract is otherwise good, the courts may still not enforce it because it violates some public policy.
Valley Medical Specialists v. Farber
982 P.2d 1277 (Arz. 1999).
Valley Medical Specialists are the plaintiffs seeking enforcement of the contract. The trial court refused to enforce while the circuit court determined to enforce. This appeal followed.
Question
Was the restrictive agreement reasonable?
Rule
Traditionally, a restrictive agreement was not enforceable. Recently, restrictive agreements are enforceable if they are reasonable. The test to apply is:
“To consider whether the restraint is such only as to afford a fair protection to the interest of the party in favor of whom it is given, and not so large as to interfere with the interest of the public. Whatever restraint is larger than the necessary protection of the party can be of no benefit to either; it can only be oppressive, and , if oppressive, it is, in the eye of the law, unreasonable and void, on the ground of public policy, as being injurious to the interests of the public.”
Holding
The restrictive covenant violates public policy and is therefore not enforceable. Reversed.
Facts
The defendant was employed by VMS as a doctor in the practice. He signed a restrictive covenant in his employment agreement stating that he would not use his skills by working with another company or clients that competes with VMS. This agreement was to extend for 3 years after termination and had a 5 mile radius around every office that VMS had a practice. His practice required patients to be seen every 6 months and the 5 mile radius restricted his use for up to 235 square miles.
The trial court determined that the restrictive covenant was unreasonable because it violated public policy. The court of appeals said that it was unreasonable as written, but could be amended by the court to make it reasonable. Thus, the court of appeals amended the agreement to allow him to provide emergency services within the restrictive boundaries.
Analysis
Here, the court disagreed with the court of appeals. First, there are competing interests that must be examined. The court needs to consider the interest of the employee, the employer, patients, and the general public. Although the employer has an interest to protect their cliental, this does not outweigh the interest of patients, the employee, and general public.
There is a special relationship between a patient and a doctor that the court wants to protect. Patients begin to trust doctors and therefore hope to ensure that there is a lasting relationship. When a doctor moves practices, the patient should be allowed to consider whether to move with the physician. Thus, because this particular field requires patients to be seen within 6 moths, anything beyond that is unreasonable because it restricts the patient doctor relationship.
Additionally, the radius is too expansive. If a patient wants to be treated by the same doctor, they would then be required to drive a maximum of 235 miles to obtain treatment.
Finally, the terms of the agreement were too broad. Instead of limiting the practice to specialty, the covenant restricts all practice. Thus, the doctor would be unable to provide emergency care without violating the practice. This could be harmful to the general public.
Although there is a severability clause within the covenant, the courts are not allowed to rewrite the contract. Going farther than removing a few words is not allowed. Consequently, the court of appeals amendment is not applicable.
In sum, there is a strong favorable towards freedom of contract, but that can be barred if public policy interests outweigh that goal.
Additional Notes
Restrictive covenants on a doctor usually outline what and where you can practice for a specified time.
The court adopted the trial courts reasoning saying that it was too broad and violated public policy.
Restatement § 188
Non-compete clauses are enforceable as long as they are reasonable.
It is unreasonable if the restraint is greater than the promisee’s interest. Additionally it is unreasonable if the promisor is harmed or public policy outweighs the benefits of the promisee.
Because doctors are so important to the public, noncompete agreements among doctors are extremely disfavored. So, the restrictions need to be very reasonable.
Here, the company had an interest in client retention and referral sources. However, these interests are outweighed by the harm to the public. The contract was overly broad restricting both all forms of practice, not just his specialty. Additionally, 3 years was unreasonable, and the 5 years was unreasonable.
Finally, the severability clause does not allow a court to completely rewrite by adding terms to the agreement.
Public policy comes from two sources:
- Announced by judges
- Legislative
In this case, the public policy was freedom of contract and the right of patients to have access to the doctor they want to see.
It is important to note that noncompete agreements can be helpful. They allow employers to train employees and invest in client development.
Thing to note: Public policy evolves to meet realistic needs (Geographical limitations may not be restrictive on someone who travels hundreds of miles for work).
P.M. v. T.B.
907 N.W.2d 522 (Iowa 2018).
P.M. is the plaintiff. They won in trial court and the defendant appealed.
Question
“Whether gestational surrogacy contracts are enforceable under Iowa law.”
Rule
The court strongly favors the freedom to contract unless it violates a statute or promotes a serious breach of public policy.
Holding
There is no violation of statute and public policy issues are not enough to overcome the freedom of contract. Because no other attacks on the contract were placed, the judgment of trial is affirmed.
Facts
The plaintiffs are intended parents from a surrogacy contract. They were past childbearing years but still wanted to raise a child together. So, they obtained the services of the defendant to be a gestational surrogate. The defendant wanted to have children was struggling with infertility. Thus, the defendants planned on using the money from the surrogacy contract to pay for IVF after the surrogacy ended.
However, disagreements arose between the parties and the surrogate mother failed to inform the intended parents of the birth of the babies, the death of one, and the continued possession of the other. Once the plaintiffs discovered this information, they sued for custody of the child arguing that the surrogacy contract should be enforced.
Analysis
First, there is no evidence that traditional or gestational surrogacy is prohibited in the State of Iowa. In fact, the statute protects surrogacy. As a result, it makes sense that these contracts would be valid.
Second, Public policy benefits biological parents, not surrogates because it allows them an opportunity to raise biological children when they would not have been able to otherwise. The arguments presented by the defendant is unpersuasive. The defendant argues that enforcement of the contract will exploit women generally, putting those in a less financial position to donate their bodies to make ends meet. However, the court disagrees saying that the contract was entered into voluntarily and that the contract was not signed under any other means that would make it unenforceable.
Thus, because there is no statutory prohibition on gestational surrogacy and the freedom of contracts overcome policy interests (plus some policy interests that favor enforcement) the contract is enforceable.
Additional Notes
Public Policy Arguments in favor of plaintiffs:
- Freedom of Contract
- Sanctity and Stability of Parents
Public Policy Arguments made by defendants but rejected:
- Exploitation of women
Steps for Analysis:
- Identify the policy: Created either through judicial opinions or Statutes
- Weigh the impact on the public v. the Impact on the litigants.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
