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Are California Physician Non-Compete Clauses Valid?

Are California Physician Non-Compete Clauses Legal?

California physicians who are pure employees of a medical group may have their job options broadened by California’s Business and Professions Code section 16600.5. Restrictions on competition are materially lessened by new legislation.  In general, California law makes physician non-compete clauses unenforceable when the MD is a pure employee and not a business partner.

Business and Professions Code section 16600 already barred a contract from restraining the doctor from working in his/her field. So provisions saying that you can’t work within 10 miles of your former employment were highly suspect if enforceable at all.

The new Section 16600.5 broadens Section 16600 because it applies “regardless of where and when the contract was signed.” Some employers are claiming that this new law only applies going forward but we disagree because (to us) it merely expands the application of an existing law. It is more in the realm of clarification than cutting new ground. The counter argument is that this new law expands the territorial reach of the old law so that out of state medical corporations are affected even when your contact is based not in California but at the corporate headquarters of the medical group.  

For the individual physician an attempt to enforce a non-compete has now been elevated to a “civil violation”. This gives the individual the right to get a court order (Restraining Order) or take other legal action based upon the violation. Already, Labor Code Section 432.5 prohibits employers from requiring employees to agree to a term or condition that the employer knows is prohibited by law. A violation of Labor Code Section 432.5 is a crime (a misdemeanor) See: Labor Code Section 433. So if an employer includes a non-compete in a new contract wouldn’t this be a “civil violation” that is also a provision “prohibited by law” and hence actionable uder 432.5? Even without the new provision, if an in state corporation or medical group has asked you to sign a contract with a non-compete clause that violations section 16600, is that a crime?

Exceptions to both laws are not entirely clear but certainly can include relationships involving the sale and compensation for “goodwill”, agreements where there is both an employment and partnership agreement and other mixed relationships. Proprietary information that has been shared may still have protections although when such information is integrated into the ability of the physician to perform his/her duties it is difficult to see how training or shared techniques or innovations are sufficient to bar a doctor from practicing.  Ini the case of Brown v. TGS, 57 Cal.App.5th 303 (Cal. Ct. App. 2020) the court understood that a confidentiality provision was simply an illegal non-compete in sheep's clothing.  [“these overly restrictive provisions operate as a de facto noncompete provision.”)  The case did not say that every single confidentiality provision was barred so this is still a potential issue when you as a physician switch 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.

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