What employed physicians should know about noncompete clauses

AMA News Wire

What employed physicians should know about noncompete clauses

Feb 21, 2024

A physician’s employment contract—especially that first contract—can set the tone for the career yet to come, so it’s important for employed physicians to ensure they understand what they are signing and to negotiate fair terms.

Salary, how long the contract will last, and termination clauses are all important to scrutinize. But physicians also need to be on the lookout for a noncompete clause—legally called a “covenant not to compete”—and it needs to be scrutinized if it exists. 

The first question to ask, said Florida-based lawyer Richard H. Levenstein, is: What are the restrictions?

This includes the physical area a physician would be restricted from practicing in if they left the job. Is it a 25-mile radius? A 50-mile radius? More? Less? And that includes understanding the amount of time the physician would be restricted from working within that restricted radius—one year? Two years? Another time period?

“Assuming there is a covenant, you would first look at those terms and see how that is going to impact you as a physician if that covenant is ever enforced,” Levenstein said in an interview. “Is your practice one you could move 25 miles out of town, or 10 miles, or whatever it is for a year or two? Are you a young physician where a covenant-not-to-compete would cause you to move to another location after you bought a house or you’ve had children who are in school? How disruptive is that going to be in your life?”

Physicians should become familiar with the state laws that govern their geographic area and the time periods that noncompete clauses can restrict, said Levenstein, a shareholder at the law firm of Nason, Yeager, Gerson, Harris & Fumero P.A. in Palm Beach Gardens, Florida, and leader of the health care practice group at Nason Yeager.

For example, Florida statute restricts the radius to between 25 and 50 miles depending on which section of the law is applicable to a physician, and it restricts the time period to two years. Other states may vary in the specifics of distance and time restrictions. And some states—including California, New Hampshire and Minnesota—have outlawed noncompete clauses in part or entirely.

Get expert help from the AMA to understand physician employment contracts.

It’s unlikely that a physician can get a noncompete clause totally eliminated from a contract, but Levenstein said it is important for a physician to do everything they can to limit what triggers a noncompete clause’s applicability.

Some ways to go about that are to have the covenant only apply:

• If the physician leaves employment without cause, meaning they just decide one day that they don’t want to work there anymore.
• If the employer fires the physician for cause, meaning the employer has a reason to terminate the physician’s employment.

“I’d try my best to have those covenants only apply in those two circumstances, which eliminates the employer’s ability to terminate without cause and then enforce the covenant. That is a terrible result for a physician,” said Levenstein, a lecturer at Tulane University School of Medicine and an adjunct professor of law at the university’s law school. “As a lawyer, it seems to me that the employer has an argument to make that if the employee leaves without cause or if the employer terminates for cause, the enforcement of the covenant would be a fair result. But if the employee terminates for cause or if the employer terminates without cause, there shouldn’t be a covenant.”

Some contracts also have a buyout clause where an employed physician can pay a certain amount of money—generally speaking, anywhere from a half a year to a whole year of the physician’s compensation package—to eliminate the covenant. However, the only time that happens is when the new employer is willing to do that, as most physicians do not have enough money in a lump sum to buy their way out, or the ability to secure a loan to do so.

Levenstein also strongly advises that physicians have a lawyer look at a contract before they sign it. “There is very little a lawyer can do after that contract is signed,” he said.

Levenstein moderated a panel discussion at the 2024 AMA State Advocacy Summit on physician noncompete agreements.

A viewpoint article published in the Journal of the American College of Cardiology explores changes that are taking place at the state level, including a map of states that ban noncompete clauses entirely or restrict them by statute or common law. While 12 states bar noncompete clauses for physicians, the other 38 allow them with some restrictions, as provided by statute or under common law. Meanwhile, at the federal level, the Biden administration last year proposed a total ban on all noncompete clauses.

AMA policy was adopted last year to support banning noncompete contracts for physicians in clinical practice who are employed by for-profit or nonprofit hospitals, hospital systems or staffing company employers. Unfair noncompete clauses affect between 37% and 45% of physicians. However, AMA policy doesn’t support a total ban on noncompete provisions.

“Owners of private practices often invest heavily when hiring and training physicians, and those owners may believe that they need to use reasonable noncompete agreements to compete with large hospital systems or other dominant institutional employers,” AMA Trustee Ilse Levin, DO, MPH & TM, said upon passage of the AMA’s new policy. “Preserving and fostering independent physicians and other physician-led organizations is crucial to a healthy nation.”