Noncompete provision in contract might not be legal

Contract Language. By Steven M. Harris, AMNews contributor. Dec. 3, 2007.

CONTRACT LANGUAGE

A column examining the ins and outs of contract issues

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Noncompete clauses -- contract terms that prevent a physician leaving a practice from setting up shop within a certain radius for a minimum amount of time -- are not illegal in every case. But there are many instances when such clauses do violate the law, and often the practice and physicians signing off on them don't know it.

That is because there is no single, guiding law covering noncompete clauses. Their legality is covered by a patchwork of state statute and case law, along with federal restrictions on physician self-referral under the Stark laws.

Some states have statutes that severely restrict or disallow noncompete clauses completely -- Alabama, California, Colorado, Delaware, Massachusetts, North Dakota, Tennessee and Texas.

But even in those states that allow noncompete clauses, statute and case law put restrictions on how much time and distance they might cover. States such as Louisiana and South Dakota specifically stipulate, for example, that noncompete agreements can last a maximum of two years. But in many cases the limit on restrictions is defined as only what is "reasonable," and there might or might not be clear guidance from state supreme courts on how reasonable is defined.

American Medical Association policy says "covenants not to compete restrict competition, disrupt continuity of care and potentially deprive the public of medical services." It says noncompete agreements are unethical if excessive in scope.

Also, state laws might require a practice to include a buyout provision in a physician's contract if it includes a noncompete clause. That means a physician would be permitted to practice immediately upon leaving his or her former practice if the doctor pays a specified amount upon termination of the contract.