The market for health care services in the U.S. is consolidating at a breakneck pace. A total of 1,498 health care mergers and acquisitions were announced in 2015—a new record for health care M&A deal volume. (The previous record-holder was 2014, with 1,318 deals). Spending on M&A transactions in 2015 reached $563.1 billion, another new record.
These mergers have resulted in dramatically increased concentration in the industry, at multiple levels. Hospitals are acquiring other hospitals. (San Francisco, for example, now has only three significant hospital chains).
In turn, bigger hospitals are buying up specialty medical practices, turning previously-independent physicians into employees. The number of independent physicians has declined, from 57% in 2000 to 37% in 2013, according to a study published by Accenture last summer. By the end of this year, Accenture predicts that the percentage of independent physicians will drop to 33%.
More than 200,000 physicians in the U.S. are now employees, and three in four medical residents will start their career as employees of a medical group, hospital or faculty plan. In 2000, one in 20 specialists were hospital employees; by 2012, the ratio was one in four. By the end of this year, that ratio will likely be lower still.
Meanwhile, the number of physicians, relative to demand, is shrinking. The Association of American Medical Colleges (AAMC) predicts a national shortage of between 124,000 and 159,300 physicians by the year 2025. This trend leaves big institutional health care providers in a race to hoover up a diminishing supply of doctors to meet the demand for health care services of a growing and aging population. They are using covenants not to compete in employment agreements to fortify their competitive positions not only against doctors, but against each other.
Big employers can use their superior bargaining power to extract big concessions from employed physicians. The fewer the number of employers of physicians, the fewer employment options for physicians. Naturally, this has detrimental effects on a physician’s career and family.
But it also harms patients, as well. Physician non-competes frustrate the right of patients to choose their own physicians. Geographic restrictions in non-competes are there in order to make it so burdensome on the patient to visit a departing physician’s new practice that the patient will simply give up and continue seeing the physician’s former employer instead, even if that isn’t what the patient prefers.
Non-competes don’t only frustrate patients’ freedom of choice: they also disrupt continuity of patient care--a critical ingredient to good treatment outcomes. Patients who receive care from a physician whom they know and trust are more likely to comply with that doctor’s recommendations, such as by losing weight and taking medications regularly. Patients are also more likely to seek out preventive care from doctors with whom they have a long-standing relationship. Continuity of care has also been shown to reduce emergency room visits and hospitalizations, and to reduce the cost of healthcare generally--especially for seniors.
And, of course, less competition among health care providers in a geographic area means higher costs in that area. Higher cost means less accessibility – and less care – overall. In this light, it’s hardly irrational to view physician non-competes as a threat to public health.
Courts Often Aren’t Much Help
Courts typically view the doctor-patient relationship as a business asset of the doctor’s employer, just like any other customer relationship. This leads them to look primarily at market concentration as the measure of public harm that could result from enforcing a non-compete, rather than the harm that would be visited upon any of the departing physician’s individual patients as the result of the covenant’s enforcement.
Courts have been known not to enforce a non-compete if the loss of a physician’s services in a particular geographic area would result in the complete loss of services of that kind in the area, or if it would result in a monopoly over services of that kind in the area. Some courts have struck down non-competes where enforcement would deprive a community of the availability of a doctor at all times for emergencies.
But other courts have been far less enlightened. For instance, the Supreme Court of Illinois has ruled that a shortage of physicians resulting from non-competes in any particular geographic area within that state would be self-correcting, because it would encourage “young doctors” from outside to relocate to that area. (One must ask: if Mr. Market is really this good at allocating physicians, then how come there are such things as Health Provider Shortage Areas, Medically Underserved Areas and Medically Underserved Populations?)
Fortunately, not all courts are this casually dismissive toward patient welfare and choice. Courts in a number of states will consider the unique nature of the doctor-patient relationship and the harm that can result when that relationship is severed purely for commercial gain by a non-compete. The Arizona Supreme Court, for one, has observed that the “doctor-patient relationship is special and entitled to unique protection,” and has ruled that covenants not to compete involving physicians in that state must be strictly construed in light of their effect on that relationship.
But unless you live in one of the few states that prohibit physician non-competes as a matter of law, whether or not a particular physician non-compete is enforceable will depend on the unique facts and circumstances of the case. That makes the outcome of any dispute over its enforceability difficult to predict in advance. This lack of predictability – and the typically high cost of challenging a non-compete in court – can make even a facially unenforceable non-compete a burden on a physician’s career prospects.
The AMA Isn’t Much Help
Non-competes between attorneys violate lawyers’ rules of professional conduct throughout the United States. This is because the American Bar Association (ABA) has incorporated a general prohibition against non-competes in its Model Rules of Professional Conduct. Most states model their rules of conduct for attorneys on the ABA’s Model Rules.
The relationship between attorney and client is an intimate and confidential one, much like the relationship between physician and patient. One would assume that the American Medical Association (AMA) would have adopted a strong ethical stance against non-competes in physician employment agreements comparable to the ABA’s position on non-competes among lawyers. But one would be wrong.
Certainly, the AMA has challenged the ethics of physician non-competes over the years. In 1933, the AMA resolved that restrictive covenants which prevented free choice of physician were unethical.
However, when the AMA’s Judicial Council revisited the issue in 1960, it backed away from that position, ruling that a “reasonable agreement not to practice within a certain area for a certain time, if it is knowingly made and understood,” wouldn’t be unethical. Then, in 1980, the AMA reversed itself again with a Judicial Council opinion which flatly declared that physician non-competes were not in the public interest.
The AMA’s current position on this issue, which it adopted in 1996, can be found in Opinion 9.02 of the AMA’s Code of Medical Ethics. This Opinion condemns non-competes for their tendency to restrict competition, disrupt continuity of care and deprive the public of medical services. And it discourages them generally— except insofar as they are reasonable in duration and geographic scope, and reasonably accommodate patients’ choice of physician. This rule essentially tracks the “rule of reason” test which most state courts employ to determine the enforceability of non-competes.
Thus, the AMA has largely left it for each state to decide for itself what is reasonable when it comes to physician non-competes. In cases where physicians have argued that enforcement of a non-compete would violate the AMA’s ethics rules, courts have usually refused to adopt that argument, reasoning (in essence) that if the AMA’s ethics rules are not binding on its own members, why should the courts take these rules seriously.
Legislation Helps, But Are Legislatures Willing?
State legislature can take the proverbial bull by the horns and outlaw the use of non-competes in physician employment agreements. Several states—namely Colorado, Massachusetts, Delaware, Arkansas and Alabama—prohibit physician non-competes outright. California, Montana, North Dakota, and South Dakota prohibit the enforcement of employee non-competes generally, not just with respect to doctors. And while Virginia, Tennessee and Texas do not ban enforcement of physician non-competes, they do limit the conditions under which they can be enforced.
But while state legislatures may be able to strike a blow against anti-competitive practice in medical care, surprisingly few have been willing to do so.
Just last month, the state of West Virginia took legislative action to preempt the Federal Trade Commission (FTC) from blocking the merger of two large hospitals in the state. In the FTC’s view, this merger would create a near monopoly over acute-care, inpatient hospital services and outpatient surgical services in and around Huntington, West Virginia—leading to higher health care costs and reducing the hospitals' incentives to improve quality of care in that community. Nevertheless, in a move characterized by detractors as a case of “special interest politics,” West Virginia lawmakers decided to shield this and other hospital mergers from all antitrust scrutiny.
West Virginia's misguided efforts will likely fail. (State legislation can't be used to prevent federal enforcement agencies from enforcing federal law). But, if anything, this case illustrates the difficulty of fighting the consolidation wave among big hospitals on the legislative front. Can employed doctors, hoping for legislative relief from the competitive restraints big hospitals have placed on them, expect to fare better than the FTC?
What May Help: Collective Bargaining
Maybe the best way for employed doctors to resist the imposition of non-competes is to rely on a tried-and-true technique first perfected in the industrial sector: Collective bargaining. The National Labor Relations Act (NLRA) protects the rights of employees, including doctors employed by healthcare facilities, to engage in “concerted activity,” even if they are not members of the union. “Concerted activity” is when two or more employees take action for their mutual aid or protection regarding terms and conditions of employment. A single employee may also engage in protected concerted activity if he or she is acting on the authority of other employees, bringing group complaints to the employer’s attention, trying to induce group action, or seeking to prepare for group action.
It is important to know that the NLRA does not cover employees who are “supervisors,” as that term is defined under the statute. (Basically, a “supervisor” is any employee having the authority to hire, fire discipline other employees on behalf of the employer). But it does protect supervisors who refuse to violate the NLRA against employer retaliation.
One physician may not be able to negotiate a non-compete out of his or her employment agreement all alone. But a substantial segment of a large employer’s physician workforce – acting in concert under the NLRA – may be able to. When it comes to non-competes, big employers commonly use concerted action against the interests of employees. Why shouldn’t employees do the same?
David M. Briglia is an employment lawyer who represents physicians and other healthcare professionals in negotiating their employment, non-compete and practice acquisition contracts with hospitals, health systems and group practices, and in litigating breach of contract, non-compete and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland. The article above is for informational purposes only, and is not intended, nor can it be relied upon, as legal advice. It is also not intended as an advertisement, solicitation or invitation to enter into an attorney-client relationship.
The U.S. Department of Labor (DOL) is expected to issue a final rule regarding the overtime provisions in the Fair Labor Standards Act (FLSA) in late 2016 that will significantly expand the number of employees eligible to receive overtime pay. The proposed rule issued in July 2015 has already prompted health care employers to proactively evaluate their compensation and employee classification practices so as not to be caught flat-footed when final rule takes effect.
The FLSA requires certain employees to be paid overtime for any hours worked in excess of 40 in a workweek. Employers are not required to pay overtime to all employees. Among other categories, the FLSA exempts certain “white collar” workers (e.g., executive, administrative, professional). To be exempt, employees must satisfy a “salary test” and a “duties test” which require that the employee:
DOL also proposes to increase the salary threshold to meet the “highly compensated employee” exemption from $100,000 to $122,148, the 90th percentile for full-time salaried employees. All employees who earn less than $50,440 must be classified as non-exempt regardless of their job duties, and all employees who earn between $50,440 and $122,148 are potentially non-exempt, depending on their specific duties. DOL’s proposed rulemaking doesn’t make any changes to duties analyses for white collar exemptions.
Health care compensation analysts expect the rule change to impact mid-level administrative positions within hospitals and health systems especially: Lower-level white collar positions in support departments such as accounting, human resources and information technology are ones that are most often misclassified as exempt.
But it is important for physicians, physician assistants, nurses and other employed medical professionals to understand that they, too, may be entitled to overtime compensation, if they are made to work more than 40 hours per week and are paid a salary that is under the threshold, or are not paid a salary at all. This is the lesson that Righttime Medical Care, an operator of urgent care clinics in Maryland, learned to its dismay this past year when some of its current and former PAs and NPs sued it for unpaid overtime, and were subsequently granted class certification under the FLSA by the United States District Court.
The January 10, 2016 issue of the New York Times features a story about a nearly two-year-long battle that a group of hospitalists has waged against their employer’s decision to place them under the control of an outside management firm. It’s a story that traces the history of the role of hospitalists in the U.S. healthcare industry, and provides the backstory of the creation of one the first hospitalist unions in the country.
The hospital that is the subject of “Doctors Unionize to Resist the Medical Machine” is PeaceHealth Sacred Heart Medical Center in Springfield, Oregon. In the spring of 2014, its administration announced it would seek bids to outsource its 36 hospitalists to a management company that would become their employer.
The outsourcing of hospitalists has become relatively common in the last decade. The motivation for doing it are at least partly business-related: efficiency gains, cost savings and higher margins. But, as the article points out, it is also a response to growing payer pressure on hospitals to measure quality and keep people healthy after they are discharged. Meeting quality measures requires data collection and management—something many hospitals, especially smaller ones, aren’t equipped to do, but which many outsourcing companies are. According to the Society of Hospital Medicine, 25 to 30 percent of all hospitalists have worked for multistate management companies in recent years.
Although outsourced hospitalists tend to make as much or more money than hospitalists whom hospitals employ directly, their compensation is often more directly tied to the number of patients they see in a day. The cause of the hospitalist revolt at PeaceHealth Sacred Heart was the higher volume of patients that hospitalists would be expected to see under new management—from 15 to about 20 a day. The lead organizer of Sacred Heart’s hospitalists, Dr. Rajiv Alexander (who, according to the article, is known at Sacred Heart for his painstaking and often time-consuming diagnostic approach), was one of many at the hospital who viewed the prospect of higher volume as a threat to patient safety.
Some Sacred Heart hospitalists left for other jobs; but those who stayed formed a union, one of the first of its kind in the country. To everyone’s surprise, Sacred Heart’s administration agreed to abandon its outsourcing plan. Since then, the hospital and its remaining hospitalists have been involved in what the article describes as a “long, grinding negotiation . . . over the proper role of the hospital doctor” in the course of establishing a collective bargaining agreement.
Increasing hospital consolidation, more demanding payor expectations and declining reimbursements will continue to exert pressure on hospital-employed physicians, increasing their workloads and threatening their professional autonomy. All of this is a recipe for greater labor unrest.
Employed physicians should understand their rights under the National Labor Relations Act (NLRA). Under the NLRA, employees are not required to belong to a traditional labor organization in order to negotiate collectively with their employer. Two or more such employees may exercise their Section 7 rights by designating a representative and asking their employer to meet with that representative to discuss and negotiate wages and other terms and conditions of their employment. The NLRA protects employees, even in non-unionized workplaces, from retaliation by their employers for engaging in activities protected under that law. However, employees who are “supervisors” under the NLRA (basically, any individual who has the authority to recommend or perform certain supervisory functions in the employer’s interest—such as hiring, directing, promoting, disciplining, and laying employees off—and who uses independent judgment to do so) are not covered by the NLRA. More information about the NLRA and the kinds of activities it protects are available from the National Labor Relations Board, which administers and enforces the NLRA: www.nlrb.gov.
More than 40 different federal laws contain provisions that outlaw retaliation against employees who “blow the whistle” on the misconduct of their employers. Although none of them single out employees of the health care industry for special protection, a number of them are relevant to doctors, nurses, physician assistants, nurse practitioners, billing and coding specialists and other medical and administrative employees of the health care industry.
This overview is intended to help health care whistleblowers identify when they might be victims of illegal retaliation in the workplace. It speaks at a high level, and thus does not provide an exhaustive explanation of every fact that would need to be present for an employee to make out a successful claim of retaliation under any of the laws discussed. It cannot be relied on as legal advice. Most a the laws discussed below require the filing of an administrative complaint before the filing of a lawsuit in court. Some require a plaintiff to try his or her complaint before an administrative law judge. Most prescribe a very short period in which to bring a claim. (In the case of the Occupational Safety and Health Act, as little as 30 days). You need to seek legal counsel, and fast, if you believe you are a victim of illegal retaliation and want to preserve your rights.
False Claims Act (FCA) (31 U.S. Code § 3730)
For the most part, I've organized the laws discussed in this article alphabetically, with one exception: The False Claims Act. This law—first enacted in 1863 to combat fraud by government contractors during the Civil War—is the federal government's primary tool for combating fraud against the government.
The health care industry has become a prime target of the government’s enforcement efforts under the FCA. In 2009, the U.S. Department of Justice (DOJ) and the U.S. Department of Health and Human Services (HHS) created a joint task force—the Health Care Fraud Prevention and Enforcement Action Team (HEAT)—to proactively find and prosecute waste, fraud, and abuse in Medicare and Medicaid. This effort has borne fruit: Of the record-setting $5.69 billion in settlements and judgments from civil cases involving fraud and false claims brought by the DOJ in FY 2014 under the FCA, recoveries from false claims against federal health care programs, including Medicare and Medicaid, accounted for nearly half of that amount.
Common false claim schemes in the health care industry that violate the FCA include:
The FCA provides whistleblowers the opportunity to file suit on behalf of the United States against violators of the FCA. If the government intervenes in the case and recovers money through a settlement or a trial, the whistleblower (or "relator") is entitled under the FCA to 15 percent to 25 percent of the recovery. If the government doesn't intervene in the case and the whistleblower chooses to pursue it anyway, the reward is between 25 and 30 percent of the recovery.
The FCA creates a cause of action for any employee, contractor, or agent who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by that person (or others associated with whom that person is associated) in furtherance of a qui tam action or other efforts to stop one or more violations of the FCA. Making an internal complaint to your employer regarding suspected violations of the FCA should be enough to obtain protection.
Relief available to an aggrieved whistleblower includes reinstatement with the same seniority status that the whistleblower would have had but for the discrimination, two times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees.
Time to file a complaint: 3 years.
Age Discrimination in Employment Act (ADEA); 29 U.S.C. § 623(d)
The ADEA protects people who are 40 or older from discrimination in employment because of age. It also prohibits an employer from discriminating against an employee or applicant for employment because that individual has opposed a discriminatory practice made unlawful by the ADEA, or because the individual has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or litigation under the ADEA. The ADEA also prohibits such actions when committed by an employment agency against any individual, and by a labor organization against a member or applicant for membership.
Time to file complaint: 180 days.
Americans with Disabilities Act (ADA); 42 U.S.C. § 12203(a)
The ADA requires that employers reasonably accommodate the known physical or mental limitations of an otherwise qualified individual with a disability who is an applicant or employee, unless doing so would impose an undue hardship on the operation of the employer's business. The ADA also prohibits discrimination against any individual because he or she has opposed any act or practice made unlawful by the ADA or because such individual made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under the ADA.
Time to file a complaint: 180 days.
Employee Polygraph Protection Act (EPPA); 29 U.S.C. § 2002(4)
The EPPA generally prevents employers from using lie detector tests for prescreening or during the course of employment (with some exceptions for certain industries and federal, state and local government). The EPPA prohibits an employer from discharging or otherwise discriminating against an employee or prospective employee because such individual (1) has filed a complaint, or instituted or caused to be instituted any proceeding under or related to the EPPA; (2) has testified or is about to testify in any such proceeding; or (3) has exercised any right afforded by the EPPA.
Time to file a complaint: 3 years.
Employee Retirement Income Security Act (ERISA); 29 U.S.C. § 1140
ERISA prohibits any person from discharging, fining, suspending, expelling, disciplining, or discriminating against a participant or beneficiary for (1) exercising any right to which he or she is entitled under the provisions of an employee benefit plan, section 1201 of title 29, U.S. Code, or the Welfare and Pension Plans Disclosure Act; or (2) giving information, testifying, or being about to testify in any inquiry or proceeding related to ERISA or the Welfare and Pension Plans Disclosure Act. In the case of a multiemployer plan, it is unlawful for the plan sponsor or any other person to discriminate against any contributing employer for exercising rights under ERISA or for giving information or testifying in any inquiry or proceeding before Congress related to ERISA.
Time to file a complaint: Depends. ERISA doesn’t provide a limitations period for retaliation claims, so a court will typically the state law limitations period corresponding to wrongful termination or retaliatory discharge, and sometimes the limitations period that benefits plan sponsors include in their benefit plan documents and summary plan descriptions.
Fair Labor Standards Act (FLSA) 29 U.S.C. § 215(a)(3); 29 U.S.C. § 218(c)(a)
The FLSA establishes minimum wage, overtime pay, recordkeeping, and youth employment standards affecting employees in the private sector and in Federal, State, and local governments. The FLSA prohibits an employer from discharging or otherwise discriminating against an employee because such employee filed a complaint or instituted any proceeding under the statute, testified or is about to testify in any such proceeding, or served or is about to serve on an industry committee.
The Patient Protection and Affordable Care Act (ACA) amended the Fair Labor Standards Act (FLSA) to provide additional protections for employees. Under the new section 18(c) of the FLSA, an employer is prohibited from discharging or otherwise discriminating against any employee because he or she has (1) received a premium tax credit or cost-sharing subsidy under the ACA; (2) provided, caused to be provided, or is about to provide or cause to be provided to the employer, the federal government, or a state attorney general information related to any violation of, or any act or omission the employee reasonably believes to be a violation of, any provision of title 29 of the U.S. Code (which contains federal employment and labor laws); (3) testified or is about to testify in a proceeding concerning such a violation; (4) assisted or participated in, or is about to assist or participate in, such a proceeding; or (5) objected to, or refused to participate in any activity, policy, practice, or assigned task that employee reasonably believed to be in violation or any provision of title 29 of the U.S. Code, or any order, rule, regulation, standard, or ban under such title. 29 U.S.C. § 218c(a).
Health care professionals are usually exempt from the protections of the FLSA under the executive, administrative or professional exemptions that exist under Section 13(a)(1) and regulations promulgated by the U.S. Department of Labor—but not always. For example, non-physician medical professionals who are paid by the hour rather than paid a salary may be entitled to overtime wages under the FLSA.
Time to file a complaint: 2 years; 3 years for a “willful” violation; for section 18 (c) violations, 180 days.
Family and Medical Leave Act (FMLA); 29 U.S.C. § 2615
The FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave. The FMLA prohibits an employer from discharging or otherwise discriminating against any individual because he or she (1) has opposed any practice made unlawful by the FMLA; (2) has filed a charge, or instituted or caused to be instituted any proceeding under or related to the FMLA; (3) has given or is about to give any information in connection with any inquiry or proceeding related to any right provided under the FMLA; or (4) has testified or is about to testify in any inquiry or proceeding related to any right provided under the FMLA.
Time to file a complaint: 2 years; 3 years for a “willful” violation.
Genetic Information Nondiscrimination Act (GINA); 42 U.S. Code § 2000ff–6
GINA prohibits group health plans and health insurers from denying coverage to a healthy individual or charging that person higher premiums based solely on a genetic predisposition to developing a disease in the future. It also prohibits employers from using individuals' genetic information when making hiring, firing, job placement, or promotion decisions. GINA also outlaws discrimination against any individual who has opposed any act or practice made unlawful by GINA or because such individual made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing relating to GINA.
Time to file a complaint: 180 days.
National Labor Relations Act (NLRA); 29 U.S.C. § 158(a)(4)
The NLRA is a foundational statute of US labor law which guarantees basic rights of private sector employees to organize into trade unions, engage in collective bargaining for better terms and conditions at work, and take collective action including strike if necessary. The act also created the National Labor Relations Board, which conducts elections that can require employers to engage in collective bargaining with labor unions.
The Act does not apply to workers who are covered by the Railway Labor Act, agricultural employees, domestic employees, supervisors, federal, state or local government workers, independent contractors and some close relatives of individual employers. Employed physicians are not barred from engaging in protected collective bargaining activities under the NLRA, but the fact that managers and supervisors are not regarded as “employees” under the NLRA often prevents physicians from enjoying its protections.
Under section 8(a)(4) of the NLRA, it is an unfair labor practice for an employer to discharge or otherwise discriminate against an employee because he or she has filed charges or given testimony under the NLRA.
Time to file a complaint: 180 days.
Occupational Safety and Health Act of 1970 (OSH Act); 29 U.S.C. §660(c)
The OSH Act prohibits an employer from discharging or in any manner discriminating against an employee because such employee filed a complaint or instituted or caused to be instituted a proceeding under the OSH Act, or has testified or is about to testify in any such proceeding, or exercises any right or protection afforded by the OSH Act.
OSHA has issued standards for many common workplace health and safety risks in healthcare facilities, including blood-borne pathogens, ionizing radiation, and laboratory chemicals. In 2013, U.S. hospitals recorded nearly 58,000 work-related injuries and illnesses, amounting to 6.4 work-related injuries and illnesses for every 100 full-time employees—almost twice as high as the overall rate for private industry. In the summer of 2015, OSHA announced that it is expanding its use of enforcement resources in hospitals and nursing homes to focus on musculoskeletal disorders related to patient or resident handling, blood-borne pathogens, workplace violence, tuberculosis and slips, trips and falls.
Time to file a complaint: 30 days.
Title VII of the Civil Rights Act of 1964 (Title VII); 42 U.S.C. § 2000e-3
Title VII prohibits employment discrimination based on race, color, religion, sex and national origin. Title VII prohibits an employer from discriminating against any employee or applicant for employment because he or she has (1) opposed any practice made an unlawful employment practice by Title VII; or (2) made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under Title VII. Title VII also prohibits such actions when committed by an employment agency or joint labor-management committee against an individual, or labor organization against a member or applicant for membership.
Time to file a complaint: 180 days (up to 300 days in some states, including Maryland and the District of Columbia).
Sarbanes-Oxley Act of 2002 (SOX); 18 U.S.C. § 1514A
This statute will only apply if you work for a health care provider that is traded on a stock exchange, or is owned by, or owned in common with, a publicly-traded company. SOX prohibits publicly traded companies, including any subsidiaries or affiliates whose financial information is included in the consolidated financial statements of such companies, and nationally recognized statistical rating organizations from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against an employee because such employee provided information, caused information to be provided, otherwise assisted in an investigation, or filed, testified, or participated in a proceeding regarding any conduct that the employee reasonably believes is a violation of SOX, any SEC rule or regulation, or any federal statute relating to fraud against shareholders, when the information or assistance is provided to a federal regulatory or law enforcement agency, any Member or committee of Congress, or a person with supervisory authority over the employee or investigative authority for the employer, regarding any violation of 18 U.S.C. §§ 1341 (mail fraud), 1343 (wire fraud), 1344 ( bank fraud), 1348 (securities fraud against shareholders), or any SEC rule or regulation, or any other federal law regarding fraud against shareholders.
Time to file a complaint: 180 days.
Uniformed Services Employment and Reemployment Rights Act (USERRA); 38 U.S.C. § 4311(b)
The purpose of USERRA is to protect civilian job rights and benefits for veterans, members of reserve components, and individuals activated by the President of the United States to provide federal response for national emergencies. USERRA prohibits an employer from discriminating or taking any adverse employment action against any person because such person has (1) taken an action to enforce a protection afforded by the statute; (2) testified or otherwise made a statement in or in connection with any proceeding under USERRA; (3) has assisted or otherwise participated in an investigation under USERRA; or (4) has exercised a right provided by USERRA.
Time to file a complaint: No limit.
Let’s say that you’re a registered nurse, employed at a hospice in Montgomery County, Maryland. Pain management being an important part of hospice care, your employer often dispenses high-power, potentially dangerous narcotics to its patients. The problem is, it has recently started providing narcotics to patients without a physician’s order.
Eventually, you come to find out that narcotics are sometimes even being dispensed to individuals who aren’t patients of the hospice at all. You learn that "starter packs" of medications, containing adult doses of narcotics, have been ordered for every patient—including your employer’s pediatric patients, some of whom live in homes with many children and with little supervision in the house.
Naturally, you’re alarmed. You recognize the danger to public safety posed by your employer’s reckless dispensation practices. You believe that, as a registered nurse, you have a legal duty to say something. You send an email to your supervisor describing these lapses. Shortly thereafter, you’re fired.
Do you have a claim for wrongful termination?
The story above isn’t hypothetical. It’s a very short summary of the allegations made by the plaintiff in Lark v. Montgomery Hospice, Inc., 414 Md. 215 (2010). In Lark, the Court of Appeals reversed the trial court, which had dismissed Susan Lark’s claim of wrongful termination under the Maryland Health Care Worker Whistleblower Protection Act, and reinstated her claim against her former employer.
The Health Care Worker Whistleblower Protection Act (the “Act”) is codified under Sections 1-501 through 1-505 of the Health Occupations Article of the Maryland Code. Any employed professional who is licensed by a professional board under the Health Occupations Article is entitled to protection under the Act. This includes, but is not limited to:
· Physician Assistants
· Physical therapists
· Psychologists and
Under the Act, an employer may not take or refuse to take any personnel action as reprisal against an employee because the employee:
(1) Discloses or threatens to disclose to a supervisor or board an activity, policy, or practice of the employer which is in violation of a law, rule, or regulation;
(2) Provides information to or testifies before any public body conducting an investigation, hearing, or inquiry into any violation of a law, rule, or regulation by the employer; or
(3) Objects to or refuses to participate in any activity, policy, or practice which is in violation of a law, rule, or regulation.
Unfortunately, the scope of the Act’s protection is more limited than one might wish. In order for an employee’s disclosure to an employer’s activity, policy or practice to be protectable, that activity, policy, or practice must pose a “substantial and specific danger to the public health or safety.” So if, for example, the violation disclosed by the employee relates to fraudulent Medicaid billing, the employee’s reporting activity with respect to that violation would not be protected under the Act.
Moreover, although Maryland enacted a Health Care False Claims Act in 2010, which outlaws false and fraudulent claims under any State health plan or program—and which contains an anti-retaliation provision for employees and others who disclose or oppose activities which they reasonably violate that law—professional employees who are covered under the Health Care Worker Whistleblower Protection Act cannot bring claims of retaliation under the Health Care False Claims Act. Thus, doctors, nurses and most other employed healthcare professionals (who are often in the best position to prevent and detect healthcare fraud) are not protected from retaliation for reporting suspected violations of the Health Care False Claims Act unless those suspected violations pose a danger to public health and safety, and are therefore covered under the Whistleblower Protection Act.
To claim protection under the Act, a healthcare employee must at least report his or her suspicions internally. He or she must either:
(1) report the activity, policy, or practice to a supervisor or administrator of the employer in writing and afford the employer a reasonable opportunity to correct the activity, policy, or practice; or
(2) If the employer has a corporate compliance plan specifying who to notify of an alleged violation of a rule, law, or regulation, follow the plan.
Thus, the protection provided by the Act does not extend to a former employee who made no internal report before his or her employment was terminated. In Lark, the Court of Appeals ruled that the Act does protect a former employee who was fired before he or she made an external report to a board, provided that the employee made a written report internally to a supervisor or administrator of the employer. A “supervisor” under the Act means any individual within an employer's organization who has the authority to direct and control the work performance of an employee, or who has managerial authority to take corrective action regarding the violation of a law, rule, or regulation of which the employee complains.
An employee bringing an action under the Act may recover lost wages, benefits, and other compensatory damages. An employer who has been terminated in violation of the Act is also entitled to reinstatement to the same or an equivalent position held before the violation, as well as the removal of any adverse personnel record entries based on or related to the violation and the reinstatement of full fringe benefits and seniority rights. If the employee prevails, a court may also assess reasonable attorney's fees and other litigation expenses against the employer.
Under the Act, an employer has an affirmative defense if the personnel action complained of was based on grounds other than the employee's exercise of any rights protected by the Act. What this means in a “mixed motive” case, where an employer terminates an employee not only for her reporting activity under the Act but also for legitimate, performance-related concerns, is not clear. The Court of Appeals hasn’t yet been presented with an opportunity to interpret the Act’s “other grounds” defense. However, in other cases involving termination in violation of public policy, the Court of Appeals has ruled that an employee need only persuade a jury that his or her protected activity played a “motivating part” in the employer’s decision to terminate her; the employee is not required to prove that, but for engaging in the protected activity, she would not have been discharged. Ruffin Hotel Corporation of Maryland, Inc. v. Gasper, 418 Md. 594, 686 (2011). One would hope that the Court of Appeals would adopt this less stringent standard for claims arising under the Act, as well.
This gap in protection may have been fixed this year. In February of 2015, Maryland enacted a more comprehensive False Claims Act that protects employees, contractors and grantees from retaliation for disclosing or opposing an activity, policy or practice which that person reasonably believes violates that law—which would include the making of false and fraudulent claims for payment to the State or any county. MD GEN PROVIS § 8-101 et seq. Importantly, healthcare professionals are not excluded from protection under this statute.
David M. Briglia is an attorney who represents physicians, physician assistants, nurses and other healthcare professionals who have been fired, harassed or demoted for reporting fraud, illegal activity, discrimination and other misconduct. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Chevy Chase, Rockville, Gaithersburg, Germantown, Columbia, Baltimore, Annapolis and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County, Calvert County and Baltimore County. You can reach the firm at 240-482-0581.This blog is intended for informational purposes only and cannot be relied upon as legal advice.
The short answer to the question posed in the title of this article is “it depends.”
There is no bar to enforcing a non-compete against a physician in Maryland. Covenants not to compete in physician employment contracts are subject to the same “rule of reason” test that Maryland courts (and the courts of most other states) apply to covenants not to compete in employment agreements in every other industry. While courts in at least other states have grappled with the serious public policy implications of non-competes in the medical profession, Maryland’s courts have said nothing about them. In fact, to count the number of reported decisions from Maryland courts that address covenants not to compete in physician employment contracts, you won’t even need one full hand.
In Maryland, as in most states, the rule is that a covenant not to compete in an employment contract, under which an employee agrees not to engage in a competing business against her employer upon leaving employment, will be enforced if (1) the restraint is no wider as to area, duration and prohibited activities than is reasonably necessary to protect the business of the employer, (2) the covenant does not impose undue hardship on the employee, and (3) the covenant does not harm the public interest. Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118, 123-124 (1967).
No statute in Maryland limits the enforcement of non-competes against physicians. And the Court of Appeals (the “Supreme Court” of Maryland) has made clear that it is not inclined to fashion a blanket rule against non-competes in any profession, including medicine. In the Court’s view, that’s the General Assembly’s job. See Holloway v. Faw, Casson & Co., 319 Md. 324 (1990).
In Maryland, claiming that a non-compete is overbroad isn’t always a perfect defense to its enforcement. Maryland courts are willing to “blue pencil” an overbroad non-compete—that is, strike out logically and grammatically severable words and sentences to make the non-compete enforceable. In at least one reported case, the Court of Special of Appeals (Maryland’s intermediate appellate court) has gone so far as to rewrite an overbroad non-compete so as to reduce its duration from five years to three, but on appeal the Court of Appeals declined to rule on the propriety of that approach, and hasn’t ruled on the matter since. See Holloway v. Faw, Casson & Co., 78 Md. App. 205, 239 (1989); Holloway v. Faw, Casson & Co., 319 Md. 324, 353 (Md. 1990). Courts in Maryland are also permitted to enter an injunction with a scope that is less than that of the non-compete, if the court believes that the non-compete may be overbroad in one or more respects. In these ways, Maryland courts, under the right circumstances, will partially enforce an overbroad non-compete.
A Legitimate Need for Protection?
Like all states that follow a “rule of reason” approach to enforcing covenants not to compete in employment agreements, Maryland will only enforce a covenant that is needed to protect a legitimate business interest of the employer. However, the range of business interests that count as “legitimate” in Maryland are quite narrow: Non-competes are enforced by Maryland courts only against those employees who provide unique services, or to prevent the future misuse of trade secrets, routes or lists of clients, or solicitation of customers. Becker v. Bailey, 268 Md. 93, 97 (1973).
The “unique services” justification has rarely ever been invoked in Maryland to uphold a non-compete. The only reported instance of the Court of Appeals having done so is in Milward v. Gerstung International Sport Education, Inc., 268 Md. 483 (1973). That case involved a summer camp administrator who had been hired by the complaining employer because of he had achieved local celebrity as a junior-league soccer coach, and the employer expected that celebrity to exert a draw on camp patrons. Subsequent decisions by Maryland state courts make clear that the “unique services” doctrine is limited in applicability to one-of-a-kind employees with similar celebrity appeal. Specialized education and training (like the kind possessed by physicians) are not qualifications that in and of themselves establish uniqueness; nor are employer-provided training or experience, or skills gained on the job. See Ecology Services, Inc. v. Clym Environmental Services, LLC, 952 A.2d 999, 1010 (2008); Labor Ready v. Abis, 767 A. 2d 936, 946 (2001). So, if you are a physician, it isn’t likely that the “unique services” doctrine will justify the enforcement of a non-compete against you—unless, perhaps, you are Dr. Oz.
It is also unlikely that the need to protect patient lists and other trade secret information will justify enforcing a post-employment non-compete against a practicing physician. Clinicians without high-level management responsibilities will rarely have access to information of their employer that is legitimately a trade secret. In any event, it would be unusual for a physician employment contract that contains a non-compete to not also include confidentiality and patient non-solicitation clauses. The latter should suffice to protect any legitimate interest that the employer has in confidential information. Maryland courts have demonstrated a preference for enforcing confidentiality and reasonable non-solicitation clauses rather than non-compete clauses when such clauses are present in the same employment contract.
Usually, the only legitimate interest that a healthcare employer will have in enforcing a non-compete against a healthcare professional will be for the protection of patient goodwill. The rule in Maryland is that if part of the compensated services of the employee consists of the creation of goodwill of customers, then a protectable interest justifying a non-compete may exist. Silver v. Goldberger, 231 Md. 1, 7, 188 A.2d 155 (1963). In determining the employer's need for the protection in a professional services business, the question is whether the personal contact between employee and client is so strong that the employee can control the business of the client as a personal asset, such that, upon leaving the employer, the employee might be able to take the client with her. See Holloway, 319 Md., 349-351 (citing 41 A.L.R.2d 15, 72, §14 (1955)).
In Maryland, a legitimate need for a non-compete is typically found in cases involving employees who regularly serve the same customers over time. In these cases, the period of time considered to be a reasonable duration for the non-compete is the period reasonably necessary to sever that attachment. How long that might be depends on the facts and circumstances of the particular case. For example, in Holloway (a case involving a certified public accountant) the Court of Appeals found a period of three years to be reasonable, but not the full five years stipulated in the employee’s non-compete.
Where the employer’s business is driven by the occasional, irregular needs of the customer, rather than by a relationship between the customer and any particular employee, Maryland courts have been reluctant to enforce non-competes against employees—at least where there is no evidence that the employee has attempted to solicit away the customers of her former employer. See Tawney v. Mutual System, 47 A.2d 372 (Md. 1946), Silver, 231 Md., Becker, 268 Md. For example, in Tawney, the Court ruled that a restrictive covenant that required the former manager of a small loan company "to refrain from engaging directly or indirectly in any business competitive with that of the employer in the Baltimore City trading area for a period of two years" was unenforceable as written. In these cases, an employee cannot be restricted from competing beyond the time it would take for a new employee to reasonably become acquainted with the employer’s existing customers. In Tawney, the court pegged this length of time as being only a few days.
What does all this talk about accountants and loan officers have to do with doctors? In medicine, there are physicians who come into regular contact with the same patients over a sustained period of time. Primary care providers are the most obvious example. The success of a primary care practice often depends on the existence of goodwill between a patient and a specific physician of the practice. Part of the compensated services of an employed primary care physician might fairly be said to include the creation of patient goodwill which might follow the physician upon her departure. For the employers of these physicians, a legitimate need for the protection of a post-employment non-compete would seem to exist. In these cases, the Court of Appeals’ decision in Holloway should bear on the outcome.
But there are also physicians whose contacts with patients are occasional and short-lived, and driven wholly by the irregular needs of the patient and not by any sustained relationship between physician and patient. Emergency room physicians are perhaps the best example, but many surgeons and other kinds of specialists would qualify as well. In these cases, The Court of Appeals’ decisions in Tawney, Silver and Becker should govern the outcome, and should render a non-compete largely unenforceable except to prevent the actual solicitation of the employer’s patients by a former physician-employee.
Less than a Handful of Cases
As mentioned above, reported cases in Maryland involving physician non-competes are few and far between.
Warfield v. Booth
The first such case is Warfield v. Booth, a decision from the Court of Appeals from back in 1870. 33 Md. 63 (1870). Warfield is a non-compete case, but not one involving a restrictive covenant ancillary to an employment agreement. Instead, Warfield concerns the sale of personal goodwill as part of the sale of a private medical practice. In Warfield, the defendant physician sold the goodwill of his practice in Lisbon, Maryland to the plaintiff, also a physician. In exchange for the sale of the defendant’s goodwill, the sales contract provided that the defendant would not practice medicine in Lisbon. But the defendant did resume practicing, and so the buyer refused to continue paying the purchase price on installment, and brought a breach of contract action against the defendant for violating the non-compete.
Part of the defendant’s argument was that the covenant violated public policy. The Court of Appeals disagreed, finding that the non-compete did not violate public policy because it was limited "in its extent and operation" to the defendant's practice in Lisbon. (The Court of Appeals in Holloway would rely in part on its decision in Warfield in determining that non-competes in the accounting profession should not be treated as unenforceable per se as against public policy, reasoning—in essence—that if, in the past, the Court had been willing to enforce a non-compete against a doctor, why shouldn’t it do so against a CPA?)
Lofton v. TLC Laser Eye Centers, Inc.
The second reported case in Maryland involving a covenant not to compete in the healthcare industry came over one hundred years after Warfield: Lofton v. TLC Laser Eye Centers, Inc., a decision out of the United States District Court for the District of Maryland from February, 2001. 2001 U.S. Dist. LEXIS 1476.
The plaintiff in Lofton was an ophthalmic technician with training in refractive eye surgery. The defendant, TLC, was—and still is—a nationwide network of ambulatory laser eye surgery centers. Lofton was hired to work in TLC’s center in Rockville, Maryland. Lofton’s employment agreement with TLC included a non-compete that prohibited Lofton, for one year after the end of his employment, from working for any medical clinic, outpatient, ambulatory or diagnostic facility equipped with an excimer laser or other laser intended to be used for laser vision correction procedures, within a fifty mile radius of any TLC site.
Lofton worked for TLC for less than a year. He was terminated allegedly because he failed to attend all of the required seminars during a conference. Shortly thereafter, he took up employment with Lasik Plus, Inc., a direct competitor of TLC, in its office in Gaithersburg, Maryland. Lofton promptly lost his position with Lasik after it received a letter from TLC’s counsel complaining about Lofton’s employment with Lasik. Lofton then sued TLC alleging a number of claims, including fraudulent inducement, breach of contract, racial discrimination and tortious interference with contract and prospective economic advantage.
Much can said about the overbreadth of TLC’s non-compete with Lofton. That it banned him not only from performing refractive eye surgery, but from working in any capacity for an employer in the laser eye surgery business was almost surely overbroad as to restricted activities. That it covered a geographic radius of 50 miles of any TLC site, including ones at which Lofton never worked, was almost surely overbroad in terms of geographic scope. One can also question whether TLC had a legitimate need for the protection of a non-compete in the first place: Lasik surgery is usually a once-and-done service that doesn’t result in the formation of long-term relationships between patient and physician, and Lofton’s employment agreement also contained a confidentiality clause that should have adequately protected TLC’s interest in whatever of its trade secrets Lofton may have been exposed to. Perhaps for these reasons, TLC stipulated early in the litigation that it would not seek to enforce the non-compete against Lofton.
Although Lofton sheds no light on how a Maryland court would go about analyzing a physician non-compete, it does teach a number of cautionary lessons about the viability (or lack thereof) of certain claims and defenses that might be asserted in a non-compete enforcement action.
Lofton claimed that TLC, through its representative, fraudulently induced him to sign the non-compete by stating that it was not enforceable, and that TLC would not "go after" employees to enforce it. The court dismissed Lofton’s fraudulent inducement claim, ruling that these statements were not sufficiently “concrete” to constitute material misrepresentations of fact necessary to sustain a claim for fraud. The court regarded the statement of TLC’s representative that the non-compete was unenforceable as a statement of opinion, and noted the Maryland courts have consistently held a party's opinion is not a material misrepresentation of fact.
The court regarded the statement of TLC’s representative that TLC would not use the non-compete to "go after" Lofton as essentially promissory in nature— also not the sort of statement that Maryland law regards as a material misrepresentation of fact. The court further found that the “imprecise and speculative nature” of the “won’t go after” statement was such that Lofton could not have reasonably relied on it at the time he signed the agreement, thus undercutting yet another predicate element of Lofton’s fraud claim.
Lesson learned: Never trust your prospective employer’s statement that the non-compete contained in its proposed employment contract is unenforceable, or won’t be enforced in the future against you.
Lofton also claimed that TLC breached its contract by failing to provide him with sufficient consideration for signing the non-compete. That claim was perfunctorily dismissed by the court, which noted that, under Maryland law, it is well established that where a restrictive covenant is bargained for in exchange for employment, the employment will be sufficient consideration for the restrictive covenant.
Lofton further claimed that his termination violated the implied covenant of good faith and fair dealing inherent in his employment contract with TLC. But the court dismissed this claim, too, noting that the Maryland Court of Appeals does not recognize a general requirement of good faith and fair dealing with respect to the termination of an at-will employment relationship.
Because Lofton’s subsequent employment with Lasik Plus was terminated as the result of a cease and desist letter sent by TLC’s counsel, Lofton claimed that TLC had tortuously interfered with his employment contract with Lasik Plus. But the court ruled that there could be no malicious or wrongful interference, particularly with an at-will contract, where TLC did nothing more than act to enforce a colorable contract right, even where that contract right might ultimately have been adjudged unenforceable.
Lofton further claimed that the cease and desist letter defamed him by alleging that he stole confidential documents from TLC upon his departure. This claim also failed. The court ruled that, since the letter came from an attorney and was related to anticipated litigation, it was entitled to an absolute privilege from suit, even if it was in fact defamatory.
Lesson learned: In Maryland, you may be out of luck if your prior employer sabotages your subsequent employment by sending a “lawyer letter” to your current employer alleging breach of non-compete and trade secrets theft. This may be the case even if your non-compete with the prior employer is ultimately shown to be unenforceable under Maryland law (so long as your prior employer’s claim was at least “colorable”), and even if other factual allegations in the letter are known to be untrue by the lawyer.
 Every other industry that is except for the legal profession. Non-competes in my industry are prohibited under the Rules of Professional Conduct except in cases involving the buy-out of a lawyer’s practice upon retirement.
 Courts in many states are more apt to enforce a covenant not to compete that is ancillary to the sale of a business than they are to enforce a covenant that is ancillary to an employment agreement. They reason that the terms and conditions of a business sale are more likely to be bargained for at arms’ length, by parties of equivalent bargaining power, than are the terms and conditions of an employment agreement. Maryland courts, however, do not typically make such a distinction.
David M. Briglia is an attorney who represents physicians, physician assistants and other healthcare professionals in negotiating and litigating breach of contract, non-compete, trade secret misappropriation, unfair competition and employment law claims. The Law Office of David M. Briglia serves doctors and other healthcare professionals in Washington, D.C. and Maryland, including Silver Spring, Takoma Park, Bethesda, Chevy Chase, Rockville, Gaithersburg, Germantown, Columbia, Baltimore, Annapolis and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel County, Calvert County and Baltimore County. You can reach the firm at 240-482-0581.This blog is intended for informational purposes only and cannot be relied upon as legal advice.