Non-Compete Agreements: What You Should Know

Published On: Sep 24, 2018
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Physicians in the midst of a job search should be aware that signing a non-compete employment contract with their prospective employer could become expected in contract negotiations.

A physician restrictive covenant, also referred to as a “non-compete agreement," is a clause in a physician's contract whereby the physician (employee) agrees to disengage in competition with the employer for a prescribed period of time after he or she leaves that company’s employ.

Although it may seem insignificant, those lines in a contract can change your future. Healthcare attorney and a member of the law firm McDonald Hopkins LLC in Chicago, Steven M. Harris, Esq. advises physicians to consult with a lawyer who is well-versed in the laws of your state before signing a contract containing a non-compete clause. In addition, he says that when considering your next career move, getting a lawyer may help to shed some light on an impenetrable clause.

“I strongly recommend that no employee sign a non-compete without consulting with an attorney first,” concurs David Schein, an attorney who consults with medical practices on employment issues and serves as Director of Graduate Programs at the University of St. Thomas in Texas.

Schein adds that an attorney experienced in this area can negotiate items such as a smaller geographic area or a shorter time restriction. Occasionally, people sign agreements without fully understanding the implications. Specialists in certain areas of medicine are in demand, so it makes sense for them to use any leverage upfront.

Non-compete contracts are a way for employers to guard their protectable interests (an employer’s advantage that once the employee-employment relationship ends would make it unfair to allow the employee to compete with it). In this area of employment law, certain states do enforce non-compete agreements, though there is no national standard. What makes the non-compete clause so confounding is that they vary greatly in what they view as a reasonable non-compete. For example, non-competes in Texas often have geographic restrictions of “50-100 miles of the city where the employee practiced” according to Schein.

Some states bar its use in certain industries, such as medicine and law. In other states such as Connecticut and Rhode Island, laws passed in 2016 prohibit non-competes between employers and physicians.

Thomas Wassel, a partner with Cullen and Dykman in New York, asserts that without federal laws, time restrictions can vary by state. “Connecticut passed legislation that limits non-competes for physicians to one year and limits the geographic scope to 15 miles from the primary practice area,” he says.  Two years is common in other states. If the non-compete has to do with a buy-out or merger, it can result in additional restrictions. “Practice buy-out or merger restrictions are enforceable in Texas and often run up to 5 years,” Schein points out.

According to Wassel, medical practices in New York want “…to recoup their training and any other costs, such as professional memberships associated with their employee.” Meanwhile, Illinois courts look at “… the investment they (medical practices) have made in forming near-permanent relationships with their patients,” so courts may need to examine whether the practice markets regionally and other efforts to recruit and retain patients.

Robert W. Horton, Esquire of Bass Berry & Sims states, “For a non-compete to be enforceable, it must be considered “reasonable” and “reasonable” non-competes address issues related to geography (i.e. where someone can practice), scope (the work an employee performs in his/her new position), and time (temporal) restrictions. Limitations are necessary for the non-compete to be enforceable.”

Protectable interest differs from state to state. States try to balance an employer’s protectable interest without appearing to support a restraint of trade (any action that interferes with free competition in a market). The non-compete is a bonding part of a contract, and a physician should fully understand his contract before he enters into it. Signing an agreement without understanding all of the ramifications can cause a person to lose money or professional opportunities.

In New York and Texas, a non-compete needs to offer something called “consideration” in order to be valid; this is when something of value is offered that can be objectively measured, such as a signing bonus. Wassel says, “Employers have to offer value for it. Doctors can fight if there is a no consideration. The mere fact of hiring the doctor can be adequate consideration, if properly documented.”

Physicians can also challenge if the non-compete contains anything beyond “reasonable restrictions” to geography, scope and time. Courts may narrow non-competes though it does not mean that a judge will throw it out. Even if a judge agrees to narrow the time frame from two years to one year, a physician is still hampered by a one-year restriction.

For example, in April 2018, 92 doctors of Mecklenburg Medical Group (MMG) sued Atrium Health seeking release from restrictive work covenants and the right to form a standalone practice. Filed in Mecklenburg County Superior Court, the complaint, alleges the health system engaged in anti-competitive practices including non-compete agreements and compelling doctors to refer patients to Atrium facilities if they needed additional care.

At the time of writing, Atrium has agreed to release the physicians from the non-compete agreement and had informed them that their last day would be Aug. 31st. MMG attorneys are reviewing the agreement and how it affects the pending lawsuit.

Even if a physician does prevail in court, there are often substantial costs. Lawsuits are “very expensive initially because (your former employer) can get an injunction,” says Adi Amit, a partner with the law firm Lubell Rosen in Florida. An injunction is a judicial order that restrains a person from beginning or continuing an action that threatens or invades the legal right of another (in this case, a physician working for a new employer). “Legal fees, even for a brief round of injunction hearings, can run at least $10,000 for each side,” cautions Schein.

Attorneys from a variety of states agree that the judge that hears the case influences the outcome. Amit says that in Florida, some judges are “pro-employee and some are pro-employer.” As there are no bright line rules, these agreements are so dangerous to sign.”

Another example of significant differences in state laws, according to the website, codes.findlaw.com, in Texas, non-compete agreements for physicians must contain a buy-out provision. This means the physician can buy-out his/her non-compete agreement for an agreed upon price.

Non-compete agreements are enforceable in every state but California. Also, the Colorado legislature amended its law on non-compete clauses to allow doctors to continue treating patients with rare diseases after they part with an employer. The bill became law in April 2018.

A physician’s specialty is an important fact of the case in some states. Amit says, “There is the issue of public safety.” Specializing in Zika research and treatment may influence the perception of a contract’s “reasonableness” in South Florida.

The American Medical Association’s (AMA) guidance states doctors “should not enter into covenants that:

(a) Unreasonably restrict the right of a physician to practice medicine for a specified period of time or in a specified geographic area on termination of a contractual relationship; and

(b) Do not make reasonable accommodation for patients’ choice of physician.”

In fact, the AMA Code of Medical Ethics recommends that physicians avoid restrictive covenants whenever possible. Among its concerns are that they can limit access to care and disrupt care continuity.

Without a clear agreement and strong legal counsel, doctors could suffer significant financial losses as the result of a successful lawsuit.

 

References:

Physician Employment Relationships, Robert W. Horton, Esquire, Bass Berry & Sims; April, 2013 - www.bassberry.com.

Texas Business and Commerce Code - BUS & COM § 15.50. Criteria for Enforceability of Covenants Not to Compete, codesfindlaw.com, Thomson Reuters Westlaw; - codes.findlaw.com

A Beginner's Guide to Physician Non-Compete Agreements, Jordan Fensterman, MD Magazine, Abrams Fensterman Fensterman Eisman Formato Ferrara & Einiger, LLP; August 23, 2013 - www.mdmag.com

 Opinions on Financing & Delivery of Health Care (11.2 Health Care Organizations & Physician Practice) - Code of Medical Ethics, AMA Policy Finder; Modified 2017 - policysearch.ama-assn.org

 Mecklenburg Medical Group (MMG) vs Atrium Health Complaint, Mecklenburg County Superior Court; April 2018 - Charlotte Business Journal Physicians in the midst of a job search should be aware that signing a non-compete employment contract could become expected in contract negotiations.