Also known as a restrictive covenant, a noncompetition clause, or covenant not to compete, a physician non-compete agreement is a clause in the contract between the employer and physician that imposes certain limits on where a physician may practice after the employment covered by the contract ends. An agreement not to compete restricts the physician from working:
- Within a specified profession
- Within a certain geographic region
- For a certain period of time
For example, an optometrist who leaves her employer might not be able to practice her profession within 80 miles of the practice she is leaving for the following year.
In order to be enforceable, this clause needs to incorporate certain elements. These are largely dependent on the situation, and thus should be tailored to fit.
Key Components of a Restrictive covenant
At the very core, the agreement should be reasonable. The employer must have market interests to protect, but the terms also have to be fair to the physician. The terms cannot unreasonably impede the physician’s ability to make a living or impose unnecessary limitations.
For example, a non-compete clause for an optometrist would be considered reasonable if there is a chance the physician could disrupt business for his former employer by practicing optometry nearby. However, if there is no chance that his doing so would have that effect, then the clause might be considered unreasonable and would therefore not be enforced.
Consideration is what the employer offers the physician in return for not competing. Often, this is the job offer to a new employee. For an existing employee, a monetary payment is often sufficient. However, continuing employment for a current employee is generally not adequate consideration.
The three parameters listed above (field of practice, geographic region, and period of time) should be reasonable. The scope of these parameters should protect the employer’s interests while also allowing the physician freedom to continue making a living. If the scope is too strict for the employee, courts won’t likely enforce it. On the other hand, if it’s too lenient, it could pose a risk for the employer.
In some states such as Texas, the non-compete must contain an opportunity for the departing physician to buy-out the non-compete. It may be stated as a specific dollar amount often based on a percentage of the physician’s compensation. Alternatively, the provision may allow or require that the buy-out amount be determined by a mediator or arbitrator.
State Specific Requirements
In addition to buy-out provisions in the non-compete clause, some states impose further requirements to support enforceability. For example, Texas law requires that there by access to records for patients treated by the departing physician, that a list of these patients be provided and if there is a need for continuing care by the physician that this be allowed.