Are California Physician Non-Compete Clauses Valid?

Physician non-compete clauses are generally not enforceable but there are exceptions and methods of enforcement through coercion and threat. The basic law on non-compete agreements is outlined in this article.

California Physicians: Expanded Job Options Under New Non-Compete Legislation

California’s Business and Professions Code Section 16600.5 significantly broadens job opportunities for physicians who are pure employees of medical groups. Recent legislation has materially lessened restrictions on competition. Generally, California law renders physician non-compete clauses unenforceable when the MD is an employee rather than a business partner.

Understanding Business and Professions Code Section 16600

Section 16600 already prohibits contracts that restrain doctors from practicing in their field. Provisions preventing work within a 10-mile radius of former employment were highly suspect, if enforceable at all.

New Legislation: Section 16600.5

The new Section 16600.5 expands Section 16600 by applying “regardless of where and when the contract was signed.” While some employers argue this law applies only moving forward, we believe it merely clarifies existing law. This new law extends the territorial reach, affecting out-of-state medical corporations even if the contract is based at the corporate headquarters outside California.

Civil Violations and Legal Actions

For individual physicians, attempts to enforce a non-compete are now considered a “civil violation.” This grants the right to seek a court order (Restraining Order) or take other legal actions. Labor Code Section 432.5 already prohibits employers from requiring employees to agree to terms known to be illegal. Violating Section 432.5 is a misdemeanor (Labor Code Section 433). Therefore, including a non-compete in a new contract could be both a civil violation and a provision “prohibited by law,” actionable under Section 432.5. Even without the new provision, if an in-state corporation or medical group asks you to sign a contract with a non-compete clause that violates Section 16600, it could be considered a crime.

Exceptions and Legal Nuances

Exceptions to these laws are not entirely clear but may include relationships involving the sale and compensation for “goodwill,” agreements with both employment and partnership terms, and other mixed relationships. Proprietary information may still have protections, although integrating such information into a physician’s duties complicates the enforcement of non-compete clauses. In Brown v. TGS, 57 Cal.App.5th 303 (Cal. Ct. App. 2020), the court recognized that a confidentiality provision could act as an illegal non-compete clause. However, not all confidentiality provisions are barred, making this a potential issue when switching practice groups.

Non-Solicitation Agreements

What about your patients? Can you let them know you are leaving? Do the patients "belong" to the practice? This is still an open area and you have to balance your contact terms, patient interests and the current highly unsettled state of the law.

Danger to Physicians

If you are changing jobs does your new employer accept legal liability by hiring you? Perhaps. If your face and resume are featured in advertising does that violate your non-solicitation agreement? You may start feeling safe with the new California legislation but the attorneys for the medical group have planned ahead. Are you an employee or a partner? Remember those stock shares that you got that give you 1/10 of 1% ownership of the corporation but they have no value unless the corporation is sold which it never will be? Well does that make you a "partner" so that the protections of California’s Business and Professions Code Section 16600.5 do not apply?

We believe that the cases and courts will support the intent of the statute over meaningless exceptions crafted in lawyers' offices - but there is no 100% guarantee.

If you are a physician seeking to change jobs, these California laws should give you confidence in your ability to move. Large corporate law firms will certainly seek to carve out exceptions. If you have any questions on these employment issues, our physician lawyers are ready to assist you.

American Medical Association Opposes Non-Competes

Some states ban non-compete agreements as they are applied to physicians. The AMA opposes non-compete agreements and has published an article titled "What employed physicians should know about noncompete clauses".

California Strengthens its Laws

California’s Strict Stance on Noncompetes: Understanding SB 699 and AB 1076

California has long been a "pro-mobility" state for workers, but the enactment of Senate Bill 699 and Assembly Bill 1076 significantly heightens the stakes for employers. Building on the foundation of Business and Professions Code Section 16600, these laws effectively close loopholes regarding out-of-state contracts and mandate proactive communication from employers.

Key Legislative Updates

1. Global Reach of Senate Bill 699

SB 699 clarifies that California’s ban on noncompete agreements is not limited by geography. If an employee is seeking work in California, the state’s public policy takes precedence over the laws of other states.

• Universal Invalidity: A noncompete that is void under California law is unenforceable regardless of where it was originally signed or where the employment occurred.

• Civil Violations: Entering into or attempting to enforce a void restrictive covenant is now a civil violation.

• Private Right of Action: Employees and even prospective hires can sue for damages or injunctive relief. Notably, a successful plaintiff is entitled to recover attorney’s fees and costs, creating a significant financial incentive for litigation.

2. Notice Requirements under Assembly Bill 1076

AB 1076 codifies existing case law by making it explicitly unlawful to include noncompete clauses in employment contracts unless a specific narrow exception applies. Its most immediate impact, however, is the retroactive notice requirement.

• Mandatory Disclosure: Employers were required to notify current and certain former employees (those hired after January 1, 2022) that any previously signed noncompete clauses are void.

• Method of Delivery: These notices must be individualized, written communications sent to the last known physical and email addresses of the individual.

• Unfair Competition: Failing to comply with these provisions is categorized as an act of unfair competition under state law.

Essential Compliance Checklist for Employers

To align with these regulations, organizations should conduct a comprehensive audit of their restrictive covenant practices:

Employers still attempt to find exceptions to these rules and threats of legal entanglement can deter new employers.  If you unfounded attempts to interfere with your claims - fight back with expert representation by top physicians lawyers.

Expert Legal Advice from Horowitz Medical Lawyers

Is your medical career being hindered by legal issues, such as non-compete agreements? The Horowitz group of experienced physician lawyers is here to provide the expert advice you need to regain your freedom. Contact us today for a consultation.  (925) 283-1863