Restrictive non-compete covenants, also known as non-compete agreements, commonly appear in physician contracts to prevent them from working for competitors. They determine where and how a physician can practice medicine upon employee contract termination, with limitations widely varied amongst covenants.
For instance, geographic limitations of one covenant may be a mere 5 miles, whereas another covenant might mandate a 100-mile distance. While some covenants may last for 1 year, others may be valid for 3 years. They are not to be taken lightly, as breaking a non-compete covenant can result in fines up to around $250,000. A survey of around 2,000 primary care physicians in five states found that approximately 50% of office-based physicians have signed non-compete covenants. Additionally, 90% of all respondents were either engaged in a non-compete covenant at present or had been in the past.
Covenant Must Not Be Comprised by Unnecessarily Strict Elements
According to Samar Mahmoud, medical writer and University of Massachusetts in Amherst Molecular Biology, and PhD candidate, a valid non-compete covenant must be reasonable. In other words, it cannot prevent physicians from earning a living or supporting their families. Non-compete covenants must also demonstrate consideration, which is the physician’s “reward” for not competing. In the case of new hires, this “reward” is often the job offer itself. Mahmoud suggests that a valid non-compete covenant must also not be comprised of elements that are unnecessarily strict.
Non-compete covenant requirements may vary by state. Some states require that non-compete covenants provide physicians with the option to buy out of the covenant, with a buy-out price typically based on a percentage of the physician’s salary. States like Texas require that exiting physicians be granted access to their patients’ records. Texas also permits certain patients to continue with care provided by the exiting physician.
Covenants Should Offer Some Benefits for Employers
Mahmoud suggests that non-compete covenants offer benefits for employers, like protecting investments made in physician training and avoiding a situation in which departing physicians take a portion of their patient base. Although non-compete covenants give employers a sense of security, they can be disheartening for practicing physicians. For instance, having to move what could be 100 miles out of the restricted zone to honor an agreement could be stressful and disruptive for both physicians and their families.
Navigating non-compete covenants can be tricky, but Mahmoud offers some tips. For example, limiting the geographic scope of the covenant can prove invaluable for physicians. This can be done in any number of ways, like suggesting a restriction in the employer’s city, county, or zip code borders.
Include Exception for Hospitals Where Physicians Have Privileges
Mahmoud also suggests having a release in the covenant in the event a physician needs to leave their job due to valid reasons like significant salary reduction or lack of partnership options after a certain number of years. Physicians must also ensure that, should they be terminated without cause, they would be released from the covenant.
Another key tip is for physicians to include an exception for hospitals at which they have privileges. Doing so allows private practice physicians to still work at hospitals where they have gained clinical privileges.
