What Should Doctors Know About Non-Compete Clauses?June 16, 2021
A non-compete clause is the most common type of restrictive covenant. A non-compete clause limits a doctor from practicing a certain type of medicine in a particular geographic area for a specific period. The reason for such an agreement is to prevent a doctor from opening a practice and stealing patients from the previous practice.
Health care entities will require that incoming physicians sign this clause as a means of protecting the practice from future fracturing. States are divided over whether they will enforce such provisions, and generally, the United States does not like to support any documents that limit trade. On the other hand, there are those that do not wish to oppose a company’s ability to enter into a contract with another entity or person.
The enforcement of non-compete clauses does differ by state, and in certain instances, the language used in the clause will have a major impact on its enforceability. Physicians who are wary of signing such a document or fear that their new job could be in violation of a non-compete they already signed should reach out to a knowledgeable lawyer.
What is a Non-Compete Clause?
When a physician joins a new practice, they are required to sign a new contract as a part of their hiring. One aspect of that contract could be an agreement where the doctor promises that if they leave the practice they will not open another one for a certain period or within a particular geographic range. These are called non-compete clauses.
The range of time and distance vary, depending on the language of the contract. Geographically, the contract may prohibit a doctor from opening a new one within the same block or as far as the entire country. As for the timeframe, it could range from a few days to a few years.
The enforceability of these agreements ranges by state. There is an inherent conflict in the philosophy of the United States that exists when it comes to these agreements. The United States is a free-market country, and non-compete agreements are seen as restrictions on trade, so they are disfavored.
However, others say that if two adults are freely signing a contract, the courts should not step in and interfere with that contract, regardless of the details. In addition, courts have generally supported these agreements because they do not wish to invalidate contracts for businesses within their state and give them motivation to leave.
How Does My State Treat Non-Compete Agreements?
Pennsylvania and New Jersey both favor non-compete clauses because they represent a vested interest in the company of the person who is requesting that the clause be signed.
Pennsylvania courts previously have backed the agreements as long as they are incident to an employment relationship between the employer and employee. The agreement must also impose reasonable limitations on the signer in terms of geographic region and the time it covers. In many cases, the courts have modified an agreement to favor the person signing it claiming that they hinder business.
New Jersey has placed certain requirements on the non-compete clauses that it will enforce. Those requirements include that the agreement protects the legitimate interests of the employer, does not impose an undue hardship on the employee, and is not injurious to the public.
For years, the courts have agreed that trade secrets and the relationships an employee develops while at a particular company are property of the employer. Therefore, it is reasonable for a company to attempt to maintain those clients upon the departure of a particular employee. Under those circumstances, the courts have sided with supporting the non-compete clauses.
What is a Protectable Interest?
A protected interest is the investment that an employer has made into a potential employee. That includes the clients that they have obtained because of the employee, as well as training and other time that the person has placed in the physician during their time working at the practice.
If a doctor is considering challenging their non-compete in court, they should be aware that the success rate in court varies significantly, depending upon the state, and in particular, the judge overseeing the case. If a judge is pro-business, they might side with the practice, and if they are not, they might go with the doctor. Regardless, a lawsuit can be costly, even if the person challenging it is successful.
Another factor that could sway a judge’s mind is the practice area that a particular doctor is working in. If the practice area happens to be unique or exclusive to the region, the employer may not be able to argue that it needs to maintain exclusive rights to clients or the employee’s talents. If the practice area is common, there might be more of a need to protect the employer’s investment.
Why Would a Doctor Sign a Non-Compete Agreement?
Many Americans have signed a non-compete clause throughout their career. Salary does appear to have a correlation, as the higher a person’s salary, the more likely it is they will have to sign a non-compete clause.
Most physicians will sign these agreements, especially when they are early in their career or are new to a city. In many cases, new physicians do not have any contacts or are limited on prospects. Due to these limitations, many physicians will gladly sign a non-compete clause and worry about the long-term ramifications at another date. In many cases, doctors may have no intention of leaving a practice or starting their own when they first launch their career. It is not until later when they might start to consider branching out.
What Should Physicians Look Out for in Non-Compete Clauses?
For those who are considering signing a non-compete clause but are concerned there might be problems with it, there are certain red flags that they should look out for before moving ahead.
One has to do with the amount of time covered by the agreement. If it appears excessive, a person can attempt to negotiate it down ahead of time. There is also the possibility of taking a buyout to void the timing of the contract. The other aspect of the agreement that could be too constrictive are the geographical limitations.
There are certain red flags that might be considered unreasonable and could invalidate the agreement in the future. These red flags include:
- Prohibition to practice anywhere in the United States.
- Prohibition to practice anywhere in a specific state.
- Prohibition to practice in a territory comprised of excessive miles from the employer’s location.
- Prohibition to practice in certain counties.
For those being asked to sign such an agreement, or if the person is trying to get out of such a contract, it will make sense to reach out to a lawyer who can fight the agreement or negotiate with the practice to modify the terms.
What Does an Employer Need to Know About a Non-Compete Clause?
Employees are not the only ones that need to have concerns when it comes to non-compete clauses. Employers should be wary of any active non-compete clauses that a prospective physician might be obligated to that would prohibit that person from entering into a new contract.
If the prospective physician is subject to another agreement and the new employer signs them to a new contract, then that employer could be held liable for damages against the initial employer. They might find themselves in protracted negotiations with the other facility to obtain the physician, which could include financial compensation and other considerations. It is best to know a physician’s contractual status ahead of time.
Philadelphia Physician Lawyers at Sidney L. Gold & Associates, P.C. Protect Clients From Unreasonable Non-Compete Agreements
If you find yourself stuck in an unreasonable non-compete agreement or are wary about one your potential employer is requiring you to sign, the Philadelphia physician lawyers at Sidney L. Gold & Associates, P.C. can help. We will ensure that you do not lock yourself into an unfair agreement, or we might be able to negotiate a fair settlement with your former employer. Call us at 215-569-1999 or contact us online for a free consultation. Located in Philadelphia, we serve clients throughout Wilkes-Barre, Scranton, northeast Philadelphia, Bucks County, Chester County, Delaware County, and Montgomery County.