Whether a medical practice can bind a physician with a non-compete agreement depends on where the medical practice is located and which state’s law governs the contract.
Some states – California, Oklahoma, Alabama, North Dakota, Massachusetts, and Rhode Island – either prohibit all employment non-compete agreements or physician employment non-competes specifically. Prohibitions on physician non-competes in some of these states are relatively new and apply only to the employment agreements executed after the new laws came into effect. For example, the Massachusetts’s statute prohibiting physician non-compete clauses went into effect on October 1, 2018. Thus, it does not apply to physician employment agreements signed prior to that date. Similarly, Rhode Island’s and Alabama’s statutes were enacted in 2016 and apply only to the agreements signed after the statutes went into effect.
Eight states and the District of Columbia have special rules related to physician non-compete agreements. Texas, New Mexico, Colorado, Indiana, Tennessee, West Virginia, the District of Columbia, Connecticut, and Delaware, all have statutes that limit the length or geographic area of non-competition restraints in physician employment agreements, impose additional obligations on employers, allow physicians to buy out their non-compete restraints in one way or another, or all of the above.
In the last seven years, the state legislatures around the country have been tinkering with their non-compete statutes in an attempt to afford more protections to employees. This trend will continue in 2021 with more states considering how to limit the application of non-compete agreements, including those affecting physicians and other healthcare individuals.
TAKEAWAY: Medical practices and hospital systems considering hiring additional physicians in 2021 should carefully consider: (1) whether they can add non-compete restraints to the employment agreements; (2) if they cannot, what alternative restraints can be placed in the agreements to protect their goodwill and legitimate business interests; and (3) if they can, how to draft the non-compete restraints so that they comply with the special rules for physicians.
Physicians should not ignore non-competition restraints in their employment agreements and should try to negotiate those clauses when possible since most of the states find such restraints enforceable and will enforce them if they are drafted correctly.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.