A new Texas appellate decision shows why physicians should not assume that every contract provision tied to competition will be treated as a non-compete. In Afzal v. Ramineni, the Beaumont Court of Appeals considered a shareholder agreement that gave a departing cardiologist an additional payment equal to 50% of his accounts receivable (“AR”), but only if he retired or continued practicing cardiology outside a 20-mile radius of the medical practice. The physician argued that the provision was essentially a non-compete in disguise. The court disagreed.
That distinction had major financial consequences. If the clause was a covenant not to compete, it would have been subject to Texas statutory requirements governing physician non-competes. If it was instead a conditional compensation provision, those requirements would not apply. The appellate court concluded that the AR provision was a forfeiture or loyalty clause, reversed a $428,828.43 judgment for the physician, and rendered a take-nothing judgment against him.
For Texas physicians reviewing employment agreements, shareholder agreements, buyout provisions, or partnership documents, Afzal is important. A contract can create a strong financial incentive not to compete without necessarily creating a legally enforceable “non-compete” at all.
What Did the AR Clause Actually Say?
The shareholder agreement in Afzal required a departing shareholder to sell his shares back to the medical practice. It also offered an additional payment. If the physician continued practicing cardiology outside a 20-mile radius from the practice’s principal office, or retired from active cardiology practice, he would receive an amount equal to 50% of his accounts receivable as of the closing date. Thus, in practical terms, the physician could practice wherever he wanted. But his choice affected whether he received the additional AR payment. If he practiced within 20 miles, he did not receive it. If he practiced outside the radius, or retired, he could receive it.
At first glance, that sounds like a non-compete. The physician’s financial result clearly depended on where he practiced. But the appellate court focused on a narrower question: Did the agreement actually prohibit him from competing, or did it simply offer extra compensation if he chose not to compete nearby?
Why the Physician Challenged the Clause
Dr. Rajesh Ramineni left Healing Hearts Clinic and paid $100,000 to buy out a separate non-compete in his employment agreement. He then began practicing cardiology across the street from his former practice. The separate employment non-compete clearly restricted where he could practice unless he exercised the buyout. The AR clause operated differently.
Ramineni claimed that 50% of his accounts receivable totaled $428,828.43. He argued that conditioning that payment on remaining more than 20 miles away effectively created another non-compete. He also argued that the provision lacked requirements Texas law imposed on physician non-competes, including a proper time limitation.
The trial court agreed. It treated the geographic condition as unenforceable and effectively removed it from the agreement. It then awarded Ramineni $428,828.43, plus attorney’s fees, interest, and costs. The court of appeals reversed.
The Critical Question: Did the AR Already Belong to the Physician?
This is probably the most important part of Afzal for physicians evaluating similar provisions. The appellate court did not view the 50% AR payment as money Ramineni already owned and then lost because he competed. Instead, the court treated it as additional, unvested compensation that belonged to the practice unless the physician satisfied the conditions for receiving it.
The physician’s employment agreement helped drive that conclusion. It stated that the practice owned the compensation generated through the physician’s services and collected the accounts. It also expressly provided that the physician had no ownership or financial interest in the practice’s accounts receivable. That changed the analysis. Ramineni was not forfeiting AR that already belonged to him. Instead, the practice was offering an additional payment measured by 50% of his AR if he practiced outside the 20-mile area or retired.
For physicians challenging similar provisions, this distinction may be critical. The argument may look very different if the disputed money is already earned, vested, or otherwise contractually owed.
“You Cannot Compete” Is Different From “You Can Compete, But You Lose the Bonus”
The court relied heavily on the Texas Supreme Court’s decision in Exxon Mobil Corp. v. Drennen. That case involved incentive compensation that could be forfeited when an employee went to work for a competitor. The Texas Supreme Court distinguished those provisions from traditional covenants not to compete. North Texas Legal News previously discussed that decision in Forfeiture Provisions in Executive Stock Incentive Programs Are Not Covenants Not to Compete.
The basic distinction is easy to understand. A traditional non-compete says, in substance, “You cannot engage in this work.” A forfeiture clause can instead say, “You may compete, but you will lose this conditional benefit if you do.”
The Beaumont Court of Appeals concluded that AR clause fell into the second category. Ramineni never promised in that provision that he would refrain from practicing cardiology within 20 miles. In fact, he did exactly that. The clause did not stop him from competing. It simply meant that he did not receive the additional AR payment when he chose to compete within the radius.
Why the 20-Mile Radius Did Not Make It a Non-Compete
The presence of a geographic radius can make a provision look like a conventional non-compete. But Afzal shows that the existence of a radius does not end the analysis. However, the court focuesed on whether Section 5.2b actually restrained Ramineni’s right to practice medicine. Because it did not prohibit him from practicing within the radius, the court concluded that the Texas Covenants Not to Compete Act did not govern the provision. That point is easy to miss. A physician may see a 20-mile restriction and assume it is automatically a non-compete. Under Afzal, the better question is what contractual consequence follows if the physician ignores the radius and competes anyway.
Why Calling It “Purchase Price” Did Not Change the Result
Ramineni also argued that the AR payment was part of the purchase price for his ownership interest. That characterization would make the loss look less like forfeiting a bonus and more like losing money already owed for his shares.
However, the appellate court rejected that argument. The agreement separately stated that the shares would be sold for their “Agreed Value.” It then provided that, “in addition,” a qualifying departing physician would receive the 50% AR payment. The agreement also stated that section headings were for convenience and should not control interpretation.
The lesson is straightforward. Labels do not necessarily control. Courts will look at what the contract actually says the physician owns, when the payment becomes due, and what conditions must occur before the physician becomes entitled to it.
What Afzal Means for Texas Physicians
Afzal does not mean that medical practices can avoid Texas non-compete law simply by calling a restriction a “bonus,” “forfeiture,” or “loyalty payment.” Courts still look at the substance of the agreement. But the case makes clear that a financial consequence tied to competition is not automatically a covenant not to compete.
That distinction has become even more important because Texas recently changed its laws governing healthcare non-competes. North Texas Legal News discusses those changes in New Non-Compete Law for Healthcare Professionals in Texas. Afzal, however, involved older agreements, and the appellate court applied the statutory versions governing those agreements.
Physicians therefore should not read Afzal as approval of a 20-mile physician non-compete under current Texas law. That was not the court’s holding. The court held something narrower: this particular 20-mile AR provision was not a non-compete at all.
The Takeaway for Texas Physicians
A restrictive clause can cost a physician hundreds of thousands of dollars even when it does not legally qualify as a covenant not to compete. Physicians preparing to leave a practice should therefore review more than the paragraph labeled “Non-Competition.” Shareholder agreements, equity documents, redemption provisions, deferred compensation plans, bonus arrangements, and accounts-receivable provisions may impose separate financial consequences tied to competition.
The central question is not simply whether the provision makes competing expensive. The better questions are whether the physician already owns the money, whether it has vested or been earned, whether the contract actually prohibits competition, and whether payment instead depends on satisfying a future condition. Afzal shows how those distinctions can decide the entire case.
Physicians facing a Texas physician non-compete, forfeiture clause, accounts-receivable dispute, or shareholder buyout dispute should have the complete contract structure reviewed before deciding how to proceed.
Leiza Dolghih is the founder of Dolghih Law Group PLLC. She is board certified in labor and employment law and has 20+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.
This article is for informational purposes only and is not legal advice.