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Physician Employment Contracts – Non-Compete and the FTC Regulation (Coming Soon)


Physician non-compete agreements, also known as restrictive covenants or non-compete clauses, are contractual agreements that restrict physicians from practicing medicine in a specific geographic area for a certain period of time after leaving their current employment or partnership.

Non-Compete agrements hurt physicians and are usually unnecessary to genuinely protect a medical practice. New FTC regulation(s) may help.

Remember that there are individual restrictions and then there are corporate restrictions. There are also restrictions that address certain medical techniques, marketing plans and other aspects of a partnership relationship. The distinctions are important. The FTC is likely to protect individual rights but not necessarily corporate rights. The “corporate rights” are often interwoven with the individual doctor’s ability to practice so it can be a distinction without a difference that makes a big difference.

The worst case scenario is that a physician is fired without cause from a practice and realizes that the contract forbids him/her from practicing within 50 miles of the current practice. The provision may be unenforceable and the firing may be unlawful but no existing practice will take the chance to hire a physician with such legal baggage. We had a recent case of this type. The physician was forced to set up his own practice. We won the case and obtained significant damages but it was a painful decision that the physician faced. Either move his family to an area outside the non-compete or take the risk (and financial investment) of starting his own practice knowing that a loss in the litigation could crush that new venture.

The pendulum may soon swing bit in favor of the individual physician. On January 5, 2023 the Federal Trade Commission stated that it intended to issue an administrative ruling that non-compete provisions restricting individuals were unenforceable. The FTC took the first step toward implementing the regulation voting to publish a notice of proposed rule making in the Federal Register. After a 60 day comment period FTC can vote and adopt a final regulation. While the U.S. Supreme Court has been tending to restrict the powers of administrative agencies to enact broad Legislative type regulations, this restriction may be enforceable.

However, this ruling is likely to apply to individual doctors but may still allow restrictions on the use of proprietary techniques, protocols and practice procedures unique to the previous practice. It may also require the physician to leave an existing group with a small payout vs. a larger payout which is framed as compensation for a corporate interest (which may allow restrictions not applicable to an individual).

In general the enforceability of physician non-compete agreements can vary depending on the jurisdiction, as laws and court decisions differ between states. The FTC decision is important because it is “federal” meaning it supersedes any conflicting state law and is applicable nationwide.

In general, the enforceability of a physician non-compete agreement depends on various factors, including:

Applicable laws: Specfic laws and regulations governing non-compete agreements and these vary greatly state to state. Many jurisdictions have specific statutes that govern the enforceability of such agreements but even similar state laws will have great variations as grey areas are decided by the courts of that specific state.

Reasonableness: Courts often evaluate the reasonableness of non-compete agreements with a fairness analysis. This includes factors such as the duration of the restriction, the geographic scope, and the legitimate interests the agreement seeks to protect, such as trade secrets, patient relationships, or goodwill. These last four items are the most dangerous for individual physicians and the scope of the FTC regulation will be important in freeing individual physicians from these “borderline fair” restrictions. (Borderline fair meaning potentially enforceable even though they are onerous to the individual.)

Public interest and patient access to care: Courts may consider the impact of non-compete agreements on public interest and patient access to care. In some jurisdictions, restrictions that significantly limit patient access to medical services or create undue hardships may be viewed as unenforceable.

Scope of the agreement: Non-compete agreements should be narrowly tailored to protect legitimate business interests without imposing undue hardship on the physician. Agreements that are overly broad or excessively restrictive may be less likely to be enforced. However, these agreements are crafted (in most cases) by very experienced medical lawyers. You can be certain that these experts have crafted a provision based upon current laws and they have worded the grey area provisions so that the scope is not excessive and the “borderline fair” provisions match a court decision where the restrictive covenant was upheld.

Physicians should consult an attorney before signing any employment contract. Even if you have no power to alter a provision, you can benefit from simply understanding what the contract really says in the context of your day to day life at work. Remember, there is the honeymoon period in most employment relationships. Contract provisions are often interpreted in the Kumbaya context. A good lawyer will analyze a contract from the divorce perspective – in other words, what does the contract say when you are at odds with your partners / employer.

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