An estimated 30 million Americans have signed non-compete clauses, making them a major issue for workers across the country. The people covered by non-competes include:
- 40% of employees making over $100,000/year
- 14% of workers making less than $40,000/year
Physicians, along with other healthcare employees, are often encouraged to sign these agreements. For a non-compete to be enforceable, it must be considered “reasonable” and “reasonable” non-competes address issues related to geography (i.e. where someone can practice), scope (the work an employee performs in his/her new position, and time (temporal) restrictions. Limitations are necessary for the non-compete to be enforceable (www.bassberry.com/…/AHLA_Article_Horton_and_Padgett).
States enforce non-compete agreements. In this area of employment law, there is no national standard. This fact means that there are several important factors doctors should recognize before signing a non-compete.
- “Reasonable” non-competes are enforceable, and what judges and states consider reasonable varies greatly.
States vary greatly in what they view as a reasonable non-compete. With regards to geographic restrictions, in Illinois, “it depends on the population density,” notes Kristin Case of the Case Law Firm in Chicago. However, non-competes in Texas often have geographic restrictions of “50-100 miles of the city where the employee practiced” according to David Schein, an attorney who consults with medical practices on employment issues and serves as Director of Graduate Programs at the University of St. Thomas in Texas.
No federal law means that states also allow for different time restrictions. “Connecticut passed legislation that limits non-competes for physicians to one year and limits the geographic scope to 15 miles from the primary practice area,” states Thomas Wassel, a partner with Cullen and Dykman. Two years is common in other states. If the non-compete is related to a buy-out or merger, it can result in additional restrictions. “Practice buy-out or merger restrictions are enforceable in Texas and often run up to 5 years,” states David Schein.
- What constitutes a “protectable interest” for a medical employer differs from state to state.
Employers view non-competes as a way to guard their “protectable interests.” In New York, medical practices want “…to recoup their training and any other costs, such as professional memberships associated with their employee” notes Thomas Wassel. Illinois courts look at “… the investment they (medical practices) have made in forming near-permanent relationships with their patients,” and so courts examine whether the practice markets regionally and other efforts to recruit and retain patients.
- There are times when fighting back legally makes sense.
In New York, as well as Texas, a non-compete needs to offer something called “consideration” in order to be valid. Consideration is when something of value is offered that can be objectively measured, such as a signing bonus. “Employers have to offer value for it. Doctors can fight if there is a no consideration,” notes Thomas Wassel. “The mere fact of hiring the doctor can be adequate consideration, if properly documented.
Physicians can also fight back if the non-compete contains anything beyond “reasonable restrictions” to geography, scope and time. Courts may narrow non-competes; however, that does not mean that a judge will throw it out. This situation means that even if a judge agrees to narrow the time frame from two years to one year, a physician is still stuck with a one year restriction.
- The odds of winning in court vary tremendously.
Attorneys from a variety of states agree on one thing: the judge that hears the case influences the outcome. In Florida, some judges are “pro-employee and some are pro-employer,” observes Adi Amit, a partner with Lubell Rosen. Kristin Case agrees, “There are no bright line rules. That is what makes these agreements so dangerous to sign.” Judges are elected in some states, such as Texas and Florida, which adds another element of uncertainty.
Even if a physician does prevail in court, there are often substantial costs. Adi Amit notes that lawsuits are “very expensive initially because (your former employer) can get an injunction.” An injunction means that a court orders a physician to stop working for a new employer. “Legal fees, even for a brief round of injunction hearings, can run $10,000 for each side,” notes David Schein.
- A physician’s specialty is sometimes relevant to the case.
A physician’s specialty is an important fact of the case in some states. “There is the issue of public safety,” says Adi Amit. Specializing in Zika research and treatment may influence the perception of a contract’s “reasonableness” in South Florida. If a physician is in a “niche area such as plastic surgery, where the practice markets on a regional basis, the employer is seen as having more of a protectable interest,” notes Kristin Case.
- Talking with an attorney upfront can save you money and spare you grief.
“I strongly recommend that no employee sign a non-compete without consulting with an attorney first,” states David Schein. An attorney experienced in this area can negotiate items such as a smaller geographic area or a shorter time restriction. People, including physicians, sometimes sign agreements without fully understanding the implications. Certain specialists are in demand, so it makes sense for them to use any leverage upfront.
- They are enforceable!
For physicians who question whether non-competes are enforceable, keep this quote in mind.
“The big myth is that they are not enforceable, but a lot of former employees have spent plenty of time and money dealing with lawsuits from their prior employers.” David Schein.
Just as patients want to speak with specialists, physicians who have signed or are contemplating signing non-competes need to seek out advice from an employment attorney with expertise in non-competes for physicians. There are significant differences in state laws. For instance, non-compete agreements for physicians in Texas must contain a buy-out provision. In other words, the physician can buy-out his/her non-compete for an agreed upon price (http://codes.findlaw.com/tx/business-and-commerce-code/bus-com-sect-15-50.html).
An Important Area for Physicians
“The AMA has come out against restrictive covenants; however, it has not become a matter of medical ethics,” explains Thomas Wassel. Unlike lawyers, who might be disciplined for trying to enforce such an agreement, as a practical matter, doctors do not face a penalty for fighting to uphold one. Without strong legal counsel and a clear agreement, doctors could suffer significant financial losses as the result of a successful lawsuit.
States try to balance an employer’s “protectable interest” with the desire not to do anything perceived as a “restraint of trade”. Non-competes are contracts, and it is important for a physician to fully understand a contract before he/she enters into it. No one wants to lose money or professional opportunities because he/she signed an agreement without appreciating all of the ramifications.
Note: Nothing in this article constitutes legal advice. At HospitalRecruiting.com, we understand that the area of non-competes is an important one for doctors. Always make sure to consult with a licensed attorney in your state about all legal matters.
Read more on non-compete clauses and restrictive covenants in this piece by attorney Rachel Ragosa – Understanding Non-compete and Restrictive Covenants in Physician Contracts