What Should Physicians Know about Restrictive Covenants?

Restrictive covenants, sometimes referred to as a non-compete agreement, often live within an employment contract. These clauses are designed to restrict your ability to leave your employer and work for a competitor or other medical facility. Because competition today in the health care industry is so fierce, hospitals and medical facilities of all kinds rely heavily on restrictive covenants to keep employees on staff.

Many physicians think of restrictive covenants as more of a scare tactic than an enforceable legal contract. Although restrictive covenants are anti-competitive and meant to hold you in place, if drafted reasonably, courts will enforce them. That could mean you sign a restrictive covenant that will hold you in place longer than you want. To understand whether your restrictive covenant is enforceable, courts will often look to four key factors, discussed below.

Factors Courts Consider in Restrictive Covenants

Consideration. As with any contract, there must be consideration for the contract to be enforceable. Consideration is a legal term for something of value. This value can be as simple as you receiving a salary in return for working at the hospital or medical facility. In most cases, that alone would be sufficient consideration.

However, depending on when you signed the restrictive covenant, a court may have issues with enforcing it. Generally, if you sign the contract prior to working for your employer, a court will uphold the restrictive covenant. However, if you were required to sign the restrictive covenant after you begin working for the hospital or medical facility, a court may be less inclined to enforce the contract.

If you were asked to sign the restrictive covenant after you started working, you did not receive anything of value, or in legal terms, adequate consideration. But, if you received a raise, a promotion, or some other item of value as consideration for signing the restrictive covenant even after you started working for your employer, a court may consider that adequate value and enforce the agreement.

Time. A restrictive covenant must also have a time limit. If there is no time limit for enforcement, a court is unlikely to hold the restrictive covenant enforceable.

A time limit is required because an employer cannot prevent you from working from a similar employer forever. That would be anti-competitive and violate your right to seek employment. Generally, courts have held two-year time frames reasonable in physician restrictive covenants.

This amount of time gives your employer enough time to replace you and protect them from unfair competition by having you go to a direct competitor. The two-year period is also not overly burdensome on you, allowing you the opportunity to continue practicing medicine after a break.

However, a time limit will not by itself make a court enforce your restrictive covenant. The enforcement of your contract will depend on many factors, so do not assume that if your restrictive covenant contains a two-year time limit that a court will automatically enforce the terms of the contract.

Geography. Just like your employer cannot restrict your ability to work forever, they also cannot restrict your ability to work everywhere. An enforceable restrictive covenant should include a geographic limit. What makes this geographic restriction enforceable will depend greatly on the specific circumstances of your situation.

A clearly unenforceable geographic restriction would include the entire country, unless you happen to be one of a handful of physicians that specializes in your field of practice. Because you would be so sought after, a court may enforce a larger geographic restriction if your medical focus is extremely narrow and specialized.

In most cases, however, a nationwide restriction would be unenforceable. If, for example, you work in an urban environment, a few city block radius may be enforceable. In this example, you would not be able to work for a similar employer within that geographic area, which would be small because of the urban nature of the area where you work.

If, however, you work in a more rural setting, a larger geographic area may be allowed. For example, maybe a 50- or 100-mile radius would be enforceable if you practice in a rural area with few other medical providers. This is what makes this part of the restrictive covenant so dependent on the unique factors of your specific situation and what makes physician restrictive covenants a case-by-case review.

Interest. Finally, a court will look to the needs of your employer to enforce the restrictive covenant against you. Courts will usually lean toward protecting the interests of a hospital or medical facility because they have invested time and money to train you and give you access to their confidential and proprietary information. Because you have access to this information, your employer may seek to enforce a restrictive covenant to protect their business interests.

Other times, courts will look to the public interest and weigh the public’s need to have a physician such as you practicing, instead of sitting on the sidelines for a period. For example, if you work in a rural area with few physicians, a court may not enforce the restrictive covenant against you because it would be in the best interest and health of the community to have as many physicians as possible working and providing health care. Or, if you have a particular specialization in which you practice that is not common in your area, a court may likewise not enforce the restrictive covenant against you because the public has a need for your medical skills.

In both examples, the public’s need for your medical services would outweigh your employer’s need to protect their business interests. Therefore, a court would likely hold your restrictive covenant unenforceable because of the need for skilled and specialized health care in your area.

How to Protect Yourself

You may enter an employment relationship with a hospital or medical facility with the intent of never leaving. But just like half of all marriages end in divorce, so do employment relationships. You may find that one day you simply do not want to work for the company anymore or you have received another offer that you simply cannot refuse. By signing a restrictive covenant, you may limit your ability to make career changes.

That is why it is crucial that you review any restrictive covenants with a lawyer before you sign them. Many hospitals and medical facilities will negotiate with you on the terms of a restrictive covenant. For example, you may be able to limit the period from two years down to just three months. This could make you feel more comfortable about signing the contract but not having to sit out of work for two years if you choose to leave the company. In this case, you could take an extended vacation and come back to work for a new employer.

Above all, remember this: It is easier to negotiate a restrictive covenant before you sign it than it is to try and fight a restrictive covenant in court. Regardless of the situation you are in, the right lawyer can help you protect your rights as a physician.

Philadelphia Physician Employment Lawyers at Sidney L. Gold & Associates, P.C., Fight for You

Restrictive covenants are meant to protect hospitals and medical facilities but do little to protect you and your right to practice medicine. Signing a restrictive covenant could cause problems for you if you ever decide to leave your existing employer. Even if you have a restrictive covenant, you may have legal options. Speak with the Philadelphia physician employment lawyers at Sidney L. Gold & Associates, P.C. today to learn your rights and what you can do to change employers. Contact us online or call us at 215-569-1999 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.