I have reviewed well over one hundred physician employment agreements. In those agreements, one of the most important sections is the non-compete (a/k/a non-competition covenant), and from my experience they are contained in the vast majority of physician employment agreements. Non-competes prohibit an physician from working as a physician for a certain amount of time within a specific geographic area upon termination of employment. The idea is that an employer has invested time and money, as well as taken risk, in developing the physician’s practice, and if the physician can take the practice down the street and compete, then the employer has been harmed significantly. On the other hand, the public policy in most states is to protect patients’ interests in keeping their physician, i.e., continuity of care, and to not force physicians out of town (which harms their tax base and quality of medical care in their community). Even the American Medical Association has stated that it disfavors non-competes, as they restrict competition, disrupt continuity of care and potentially deprive patients of access to medical care.
Non-competes come in many different forms, but they almost always apply three limitations: 1) the period of time in which the non-compete applies; 2) the geographic area to which it applies; and 3) the activities to which it applies. Many also contain a fourth provision, which is the amount of money that has to be paid to buyout the non-compete or if the physician breaches the non-compete, which is often called a “buyout” or “liquidated damages” provision.
Non-competes should be reviewed within the following framework:
How much does the physician care about the non-compete? If the physician is moving back to her hometown with her family, and her husband is taking a long-term job as well, then removing the non-compete is going to be very important. If there are no family ties to the area, and the market is such that this is the only worthwhile job in town, then the non-compete may not be important.
What other opportunities are available? In some situations there are perfectly good options outside the non-compete that would not require the physician to move. In other situations, the non-compete is so broad that the physician would have to move in order to continue employment. Sometimes the non-compete permits the physician to work for a private practice so long as it is not owned by a competing hospital. In other cases, there are teaching or research hospitals in town in which competition is not an issue, and so the employer will be willing to exclude them from the non-compete. If the non-compete is important, but cannot be removed, then these opportunities need to be considered and raised with the employer to see if there is a middle ground that allows the physician to work in the community without causing any material harm to the employer.
What does state law say about non-competes broadly, physician non-competes specificly and liquidated damages provisions, if applicable? Some states have gone as far as to ban non-competes with physicians or limit them to specific situations. In other states, non-competes are highly disfavored and so they will be enforced only when the necessity of protecting the employer’s interests outweighs the harm to the physician and patients in the community. It is highly preferable to never be put in a situation in which you choose to violate a non-compete. However, knowing where the law stands in your state is extremely helpful to evaluate the risks if you must violate the non-compete.
What are the employer’s interests in enforcing the non-compete? Employers do not have much of an interest to protect with a non-compete if the physician is not in a position to take patients or referrals to a competing practice. Similarly, in larger towns and in certain specialties, it may be that combining a confidentiality agreement and non-soliciation provision will more than adequately protect the employer’s interests such that the physician could work on the other side of town and not cause any reasonable harm to the former employer.
Can the non-compete be removed or decreased in certain situations? The most common middle grounds that I see are: 1) the non-compete does not apply if the employer terminates the physician without cause or if the physician terminates the agreement for cause; and 2) the non-compete no longer applies once the physician has worked there for a certain number of years. Others include excluding research/academic positions, as mentioned above, or excluding specific competitors but permitting the independent private practice of medicine or locum tenens work.
Everyone’s situation is different, and the laws of each state often change and are not always clear. I would encourage everyone to hire an attorney to help them review their employment agreement. Most attorneys will cost under $2,000 in all but the most complicated situations, and some will handle a simpler agreement for under $1,000. In the meantime, please do not hesitate to contact me if you have any questions.
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