Noncompete clauses can severely limit a doctor’s business options and create serious financial challenges, so negotiate with employers early and watch out for tricky contract terms that could stifle future opportunities.
That is the advice from health law experts around the country. They point out that when it comes to noncompete clauses – employment contract language that limits where physicians can practice after employment ends or is terminated – doctors should pay close attention, especially to the following:
Geographical limitations
Distance requirements within noncompete provisions are a top issue that can trip up doctors, Bloomfield Hills, Mich., health law attorney Mark S. Kopson said. The clause typically specifies that a physician cannot practice within a certain radius of the former employer. However, if an employer has three offices for instance, that 10-mile radius can quickly become a 30-mile radius or more depending how the provision is worded. Mr. Kopson recalled a recent client who practiced for 5 years in one office and was transferred to an office in another town for 30 days. He was then terminated, and his employer attempted to enforce contract terms that would prevent him from practicing within a 10-mile radius of both offices. A court determined that the employer was acting in bad faith and sought an unfair competitive advantage.
“But No. 1, you don’t want to have to go to court,” Mr. Kopson said. “And No. 2, you can have the best lawyer, but once it’s in the hands of the judge or the jury, anything can happen. That’s why you really want to do the work on this up front.”
When negotiating noncompete clauses, be cognizant of where distances are being measured from and around, the legal experts stress. Also, be clear with employers about what defines a reasonable distance, based on the geographic spread of their patient base.
“What’s reasonable for a family practice physician is probably not going to be reasonable for a pediatric neurosurgeon, as they draw their patients from varying distances,” he said. “Also, negotiate to ensure that the length of time of the restriction is reasonable. Taking into account, both the distance and time period, the physician must still be able to earn a living.”
Time frame restrictions
Negotiate the shortest duration that you can, advises Greenbelt, Md., labor and employment attorney Jay P. Holland. Noncompete provisions typically limit a doctor from practicing around a certain radius for 1-5 years, but some employers may try to enforce longer time periods.
“Consider your career and lifestyle goals carefully prior to entering into a noncompete,” Mr. Holland said. “The first approach should always be an attempt to exclude the noncompete from your prospective agreement if you are joining a practice. If a noncompete is unavoidable, then strive to make it the least onerous possible. Ask yourself prior to signing an agreement, ‘If I were to leave this practice, what are the restrictions I could live with? Are the restrictions reasonable?’ ”
Knowing your state’s law is key. State regulation of noncompete provisions widely differ. States such as California broadly hold that noncompete contracts are per se invalid – even if narrowly tailored – unless necessary to protect trade secrets. States such as Maryland allow the provisions only if area and duration restrictions are reasonable and do not impose undue hardship on employees. Three states – Colorado, Delaware, and Massachusetts – have laws that strictly prohibit noncompete clauses in physician contracts.
“Most other states will generally enforce noncompete clauses so long as their terms are reasonable in light of the interests of the employer, the employee, and the general public,” Mr. Holland said. “Therefore, noncompete clauses should be no greater in scope than is necessary to protect the business or goodwill of the employer.”
Patient retention problems
Watch out for contract language referring to “trade secrets,” adds Los Angeles health law attorney Andrew H. Selesnick . Trade secret clauses are often lengthy and typically state that physicians cannot use or retain information from the employer that is considered confidential. Because patient lists are usually considered confidential, these terms could potentially prohibit patients from following their doctor.
“If you want to leave and take your patients with you, there may be some trade secret implications associated with that,” Mr. Selesnick said. “The ability to be able to move patients is significant and can have significant financial impacts. Know what you’re getting into.”
If bringing patients with them to a new practice, doctors should make sure the employment agreement excludes these patients from any nonsolicitation provision at the time the doctor leaves, notes Mr. Holland. Include language that states physicians can retain patients they originally brought to the practice when they depart without violating the agreement.
Make sure to review any proposed noncompete clauses in relation to proposed termination provisions, Mr. Kopson said. Doctors should negotiate language that ensures noncompete obligations will be null and void if physicians are terminated without cause (if such terminations are permitted by the contract), or if the employer breaches the contract.
Seeking the advice of an experienced contract attorney before signing a noncompete clause can save doctors significant time, money, and heartache in the long run, Mr. Kopson notes.
“The biggest risk is signing a contract that has such a clause with an expectation that it will not be enforced,” he said. “If [clauses are] properly drafted, they’re going to be binding. If you get the help up front, it’s going to be a lot less expensive than having your life turned upside down because you’re stuck with a noncompete that has bad terms in it.”
Unreasonable terms
Once signed, getting out of non-compete clauses can be tricky, Mr. Selesnick said. However, doctors can usually escape them if they can prove the terms are unreasonable.
“You can get out of them, especially if they’re very restrictive and say you can’t practice within an area that may prevent you from earning your livelihood,” Mr. Selesnick said. “Courts [generally] think that employees should be able to leave and be able to get a job elsewhere, even if it’s across the street.”
Courts are typically more favorable to physician-employees than independent contractors when it comes to noncompete clauses, Mr. Selesnick said. Independent contractors are generally viewed as having more power over their work than physician-employees. They may have a tougher time convincing a court that such provisions will harm their employment options.
When seeking to enforce a disputed noncompete agreement, employers frequently will request a court-ordered temporary restraining order or injunction to enforce the clause, Mr. Holland said. Judges consider general principles of fairness and equity, and balance the relative harm to the employer and the employee, when deciding whether to issue the injunction. The employee-physician can also try to beat the employer to the courthouse steps by filing a “declaratory judgment” lawsuit that seeks guidance from the court on the contract’s enforceability.
“Typically, employers attempt to do that which is in their best economic interest,” Mr. Holland said. “If a proposal can be negotiated where the employer’s economic well-being is not threatened, then the employer should have a strong interest in a compromise.”
On Twitter @legal_med
