Physician Practice: Are Physician Non-Compete Agreements Enforceable?

medical-doctor-1314902-m.jpgHospital employment among doctors is increasing. According to Jackson Health’s 2014 Survey, the trend of physician employment is gaining speed. Rapid changes in health care industry fueled by the Affordable Care Act, more insured patients and increasing demands on doctors, decreasing reimbursement, and the growing cost and headaches of owning and running a medical practice are causing more and more doctors to view employment as a preferred career option.

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Inevitably, the termination of some physician employment relationships will trigger issues and some disputes under non-compete agreements contained in physician employment contracts. Although non-competition agreements are not in every physician employment contract, most have them. Many physicians who decide to accept employment are unable to avoid signing a non-compete agreement.

For a hospital or other health care business that employs a physician, the essential advantage of a non-compete agreement is self-evident. The business can expand its medical practice with less risk that a new doctor seeking to build a patient base will depart employment with a large patient base. For the doctor, the disadvantage of a non-compete agreement is that it can limit, often severely, job or career options when the employment relationship ends.

But is a physician non-compete agreement enforceable?

A question for every non-compete agreement is whether it is legally enforceable. While typically enforceable during employment (“moonlighting”), often the legality of physician non-compete agreements prohibiting activities after employment can be challenged. Whether a physician non-compete is legally enforceable is a matter of state law. Some states have statutes that render physician non-compete agreements illegal or severely curtail them (including, Alabama, California, Colorado, North Dakota, South Dakota, Louisiana and Montana). Most states do not have such statutes; but instead state common law dictates the parameters of a legal non-compete agreement. In those states, answering the question “is it enforceable?” is not really possible with any certainty before a non-compete agreement is reviewed by a court.

In states that do not have statutes dealing directly with physician non-compete agreements, generally speaking courts will enforce a non-compete agreement against a physician if it is deemed “reasonable” — and often that “if” can be a significant hurdle for the employer. The parameters of “reasonable” may vary from state to state, but usually are tied to a three-part test:

1. Is the non-compete agreement needed to protect a legitimate business interest of the employer?

2. Does the non-compete agreement impose an undue hardship on the physician employee’s ability to make a living by being too long in duration, to broad in scope, or too wide in the geographic area in which the prohibited activity applies?

3. Is the non-compete agreement contrary to public policy?

Each of these tests will typically require ad hoc evaluation by the presiding trial judge of the specific details between the parties. Rarely will a litigated outcome be other than unpredictable, though a lawyer’s careful analysis of applicable case law in your jurisdiction should greatly aid in getting a feel for how various elements of a non-compete are likely to be viewed. Judges will tend to look unfavorably upon non-compete agreements that might cause a shortage of professionals in a particular geographic region or area of specialty. Judges may also weigh particular factors relevant to the medical field, such as whether enforcement might facilitate a monopoly in a medical specialty; whether there will be adequate physicians for emergencies; whether termination was voluntary or involuntary; and the likelihood that the physician can find other work.

Physician Non-Compete Agreement Law Firm
If you are a health care business or a physician evaluating a non-compete agreement, your attorney should be able to provide helpful guidance on the strengths and weaknesses of how the agreement is drawn and strategies on how to deal with your particular situation. If you have questions about this post, contact our Atlanta/Augusta business and health care law firm at info@ksllawfirm.com.

Disclaimer: Thoughts shared here do not constitute legal advice. Please consult with an attorney to discuss your legal issue.

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