Understanding Non-Compete and Restrictive Covenants in Physician Contracts

Jorgen McLeman/123RF.com

Some of the most controversial aspects of physician employment contracts are restrictive covenants and non-compete agreements. While the AMA has been adamantly opposed to restrictive covenants, they are still common fixtures in the medical community. It is important that physicians and other medical professionals understand the full scope of these restrictions and how they impact future career opportunities.

What is a Non-Compete Agreement/Restrictive Covenant?

First, it is helpful to understand the basics of non-compete clauses and restrictive covenants and how they apply in an employment contract. A non-compete agreement is put in place to prevent a physician who leaves a practice from providing medical services near that former employer for a set period of time. In order for a non-compete to be enforceable, it has to be reasonably limited. Restrictive covenants can control how a physician currently practices and obtains patients. Often times, there is an additional non-solicitation agreement that prevents a physician from soliciting patients to join their new practice. It is very important to read your contract carefully in order to determine all the possible restrictions that are included. If possible, have an attorney read over your employment contract and speak with you regarding the consequences of certain terms.

Balancing Employers and Employees

In general, courts do not like restrictive covenants (hence why there are so many requirements), but they recognize them as a necessary evil. These covenants help businesses feel secure about their employee loyalty, business practices, intellectual property, and client retention. The court does not want to limit employment opportunity for physicians, either. The goal is to promote business growth without unduly burdening physicians or limiting access to care for patients. This is often achieved with reasonable restrictive covenants that are narrowly tailored for a specific purpose.

Should I Sign A Non-Compete Agreement?

While there tends to be an overall negative connotation with regards to non-competes and restrictive covenants in employment contracts, they are not all inherently bad. There are very real and important purposes served with reasonable terms. If you are offered an employment contract with a non-compete agreement or a restrictive covenant, here are a few things to consider:

1. Does the state enforce non-compete agreements? 

There are states that refuse to enforce non-compete agreements all together. If this were the case, the terms would not be enforceable as a matter of state law.

2. Are the terms reasonable in scope?

The terms are deemed reasonable in scope when you are restricted only from providing the same services that the physician provided with that particular employer.

3. Are the terms reasonable in duration?

The terms of a restrictive covenant or non-compete are required to have an end date. Generally, a reasonable duration would be just as long as needed to ensure the physician is competing with the former employer based solely on his or her skill - not on the connections or intellectual property obtained while employed. Most are limited to the length of the contract or three years, whichever one is shorter.

4. Are the terms reasonable in limiting geographic location?

A term would be deemed reasonable as to location if it limits the area no larger than where the employer obtains a majority of its patients. It also could not burden the physician or general public. For example, a restriction of 10 miles around a particular employer would be reasonable, but barring practice in the entire state would not be reasonable.

If the non-compete fails these questions, then it would be advised to enter into negotiations with the employer to remedy the contract. When signing a contract that limits your actions, it is important to think of what your goals are in the future. If the non-compete would be a burden on future employment plans, then it may be advisable not to sign. However, done correctly, restrictive covenants facilitate trust and loyalty between employers and physicians.