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 lawyer's 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".
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.