What every doctor should know about non-compete agreements and why medical practices use them.
Physician non-compete agreements are generally found in employment agreements and other types of business contracts. A non-compete agreement is an agreement between two parties that limits one party (usually the employee) from competing against the other (usually the employer) after the termination or resignation of employment. At that time, the employee most often begins working for a competitor or opens up his or her own business.
Non-compete agreements are normally created to protect the business interested of the employer and tend to limit the employee from practicing or working for a competitor in a certain area for a certain length of time. However, all states have some type of limitations for non-compete agreements and some states only allow non-compete agreements that extremely limited.
Medical practices are businesses that frequently use non-competition agreements, particularly for medical physicians. This is because medical physicians tend to share the same expertise as the medical practice and are therefore very likely to become a future competitor of that same medical practice. There are five main things medical physicians should know about non-compete agreements.
Non-compete agreements must be supported by consideration at the time it is signed.
This means that the physician must receive something of value in exchange for promising not to compete with the medical practice in the future. Most commonly, if the contract is signed before employment begins, the employment itself is sufficient consideration for the physician to receive in exchange for the promise not to compete. However, if a physician signs the non-compete agreement after he or she begins employment, courts have not always considered continued employment sufficient consideration. This means that the non-compete agreement signed after the beginning of employment should generally provide some other value to the physician than continued employment, such as a promotion, monetary bonus, or an additional benefit not included in their original employment offer or contract.
A non-compete agreement must be reasonable.
Historically, common law made non-compete provisions and agreements unenforceable because it was against public policy to restrict free trade in that way. However, in the United States the standard for non-compete agreements has changed much and most state allow some type of non-compete agreement in an employment contract. Generally, courts will evaluate non-compete agreements and determine whether they are reasonable and whether they create an unfair restrain on the free market and trade. Courts will not enforce a non-compete agreement that is unduly burdensome on the employee. This means that the non-compete agreement must be specific in several respects, as explained in the next three points.
Why medical practices use non-compete agreements.
Those in favor of non-compete agreements most commonly argue that those agreements are meant to prevent the physician from gaining a competitive advantage by what they learned and were trained on during their employment and to protect the medical practice’s clients, confidential information, and other business investments. With a non-compete agreement, a medical practice can feel more secure about hiring a physician and not have that physician become a competitor immediately after the end of his or her employment.
Non-compete agreement must be reasonable in scope, geography, and time.
Being reasonable in scope means that the medical practice can only restrict the type of activity or business that would conflict with their business. For example, if the physician chose to practice in a different area of medicine than what the medical practice treated, that non-compete agreement would not be enforceable. The non-compete must also be limited in the size of the geographical territory it includes, this would depend on where the medical practice was located and the type of area it was located in. Obviously if it was located in an inner city the geographic scope would be smaller than if it was located in a rural area. And the limitation on time means that the non-compete agreement must be limited to a certain length of time. A medical practice cannot limit a physician from practicing in a certain area indefinitely. Normally a reasonable non-compete agreement length for a physician is year or two, but it does depend on the state and the type of practice.
Non-compete agreements must protect a legitimate business interest of the employer.
This relates to the medical practice’s necessity for the agreement. The medical practice needs to be able to demonstrate why they have included a non-compete agreement and how having that agreement protects a legitimate business interest of theirs. Because the revenue in medical practices is generated most often by patients who come to the office for medical care, medical practices need to be able to prove that their clients are from a specific population of people and if the physician opened up a new practice or worked for a competitor in the same geographical area, then their business would likely suffer.
It is important to remember that each state has different laws governing non-compete agreements. Some states will uphold part of a non-compete agreement while invalidating another part of the agreement they find unreasonable. Other states will throw out the entire non-compete agreement if they find any part of it to be unreasonable. A physician should always consult with legal counsel before signing a non-compete agreement to ensure that they will have the options they seek in the future.