In recent years, it has become quite common for surgeons to become part owners of free-standing ambulatory surgery centers in Texas. Often, their purchase of the ownership comes with the strings attached – a requirement that they perform a certain number of surgeries at that particular ACS and that they do not compete with the ACS within a certain geographic radius.
While getting out of non-compete restraints is not always possible, some of the most common ways that employees – and employers that want to hire them – can overcome such agreements include the following: (1) lack of consideration; (2) unreasonable restraints; (3) no legitimate business interest, and other defenses.
There is no “rule of thumb” about what geographic non-compete restraints in physician contracts are reasonable, and medical practices need to consider what geographic restraints they need to put in place in order to protect a legitimate business interest, such as confidential information, trade secrets, goodwill, or patient base.
In January 2020 – just before the pandemic officially started in the United States – the Fifth Circuit Court of Appeals dealt with this exact issue in a case involving a termination of a firefighter by a City fire department in Texas for his refusal to get the mandatory tetanus, diphtheria, and pertussis or whooping cough (TDAP) vaccine on the grounds of his religion. The Court ruled in favor of the employer, providing a good reminder of how employers should go about addressing these types of situations.
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. Meanwhile, Texas, New Mexico, Colorado, Indiana, Tennessee, West Virginia, District of Columbia, Connecticut, and Delaware have special rules regarding physician non-competes.
Are non-compete agreements enforceable if the employee is terminated? The answer depends on which state the employee is in, as each state has its own laws regarding the enforceability of non-compete agreements.