Understanding and navigating a physician non-compete covenant

Samar Mahmoud, MS | January 10, 2022

Are you tied down by a restrictive non-compete covenant? Also known as “non-compete agreements,” these restrictions are commonly found in physician contracts and are meant to prevent doctors from working for competing employers.

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How common are these clauses? It turns out, pretty common, with nine out of 10 respondents in a recent survey indicating that they were either currently bound by a non-compete clause or they had been bound by one in the past. 

Components of non-compete clauses 

A non-compete clause between an employer and a physician sets restrictions on where and how a physician can practice medicine once an employment contract ends. An agreement prohibits the physician from working:

Within a certain region: Geographic limitations vary widely and can range from within 5 miles to 100 miles of a practice. 

For a certain time period: Non-compete agreements spell out how long the time restriction will last. Typically, non-compete clauses last between 1 and 3 years.

How enforceable are they?

In order for non-compete covenants to be enforceable, they have to include the following elements: 

Reasonableness: The agreement has to be reasonable and cannot prohibit physicians from making a living or supporting their family. 

Consideration: This is generally what the employer offers the physician in return for not competing. For new employees, the job offer qualifies as consideration. 

Scope: The components of the agreement should not be unnecessarily strict for the employee. 

Buy-out provision: In some states, the non-compete clause has to give the physician an opportunity to buy out the agreement. Usually, this is a specific dollar amount that is based on a percentage of the physician’s salary. Fines for breaking the non-compete agreement can range from $10,000 to a hefty $250,000.

State-specific requirements: Certain states have additional requirements for non-compete covenants. For example, Texas requires that departing physicians be given access to their patients’ records and allows certain patients to continue their care by the departing physician. 

What are the benefits to employers? 

Employers seek enforcement of non-compete agreements for the following reasons:

  • Employers may want to protect the significant investments they make in a physician’s training. This is especially true for physicians early on in their medical training who have had very little experience prior to joining a practice. 

  • With non-compete agreements in hand, employers do not have to worry that physicians will take a portion of their patient base and can freely expand their medical practice. 

  • In some cases, practices have proprietary techniques that they may want to protect from use by a departing physician. 

Drawbacks to physicians 

While non-compete agreements provide a safety net for employers, they come with significant detriments to practicing physicians. To be in compliance with a non-compete agreement, a physician might need to move outside the restricted geographical area, disrupting his or her family life and potentially forcing the physician to practice medicine in a less advantageous location. In addition, doctors with little experience often have difficulty navigating these agreements to avoid severe restrictions on their future endeavors. 

Tip for navigating them 

To avoid getting entangled in a non-compete covenant, here are some tips to navigate these restrictions. While it might not be possible for newly minted physicians to avoid signing a non-compete agreement altogether, the following are some tips for negotiating these clauses to bypass future limitations.

  • Limit the geographic scope of the agreement. Instead of agreeing not to practice within a 20-mile radius of your employer, consider restricting the geographic scope to the territory where your employer gets most of its patients. Suggest using the employer’s city or county borders, or one or more neighboring zip codes instead. 

  • Insert a release in the agreement should you need to terminate your agreement for a good reason. Good reasons may include a reduction in your salary that is greater than 25%, or if your employer fails to offer you a partnership in the practice after a set number of years. Along the same lines, make sure you are released from the agreement in the event you are terminated without cause. 

  • Include an exception for hospitals where you have privileges. If you are working in a private practice, negotiate a stipulation that your non-compete agreement does not apply to hospitals where you have obtained clinical privileges, even if they are in the same geographic area as the practice. The same tip goes for hospital employees. If you’re hired by a hospital network, retain the right to work for a private practice not affiliated with your previous hospital employer after your contract ends. 

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