Negotiating a Physician Non-Compete: Tips for Curbing Employer Excess

In a series of prior posts beginning here, I discussed how courts go about deciding whether post-employment covenants not to compete in physician employment contracts are enforceable. This post aims to distill that information into a list of practical tips for the physician about to enter into negotiations with her prospective employer over a non-compete. 

1.       Don’t agree to a non-compete, period.

Sometimes, refusing flat out to sign a non-compete works. Healthcare employers, under the right circumstances, may be willing to hire a doctor without binding him or her to a post-employment restrictive covenant. The success of this strategy depends, naturally, on how badly your employer wants you, and how prepared you are, both psychologically and financially, to dig in your heels and refuse to accept employment under a restrictive covenant. 

This isn’t a strategy that the average, debt-laden physician fresh out of residency would likely feel comfortable pursuing. It usually takes at least one bad experience with a non-compete to bring a doctor to the point where she simply won’t agree to another. 

You can expect this strategy to be less successful with employers that are large or that have substantial market power in a particular location. You can also expect it to be less successful if you are just starting out or for other reasons don’t have a solid history of productivity. However, this strategy is entirely appropriate if you are in a specialty where the formation of substantial patient and referral relationships doesn’t often happen. Emergency medicine is the textbook example. 

But it is also appropriate, it seems to me, in situations where you are hired by a private practice with income guaranty financing under a hospital recruitment agreement, and in situations where your employer compensates you with money loaned under an income guaranty rather than with a fixed salary. Remember that one of the principle reasons that courts enforce non-competes (and usually the most important reason in cases involving physician employment) is that non-competes serve to protect the employer’s investment in patient goodwill. Typically, in an income guaranty scenario, the only patient goodwill you will be the beneficiary of is the goodwill you’ve generated through your own efforts, and at your own financial risk. What “investment” has your employer made if the cost of building your practice has, in fact, been paid for with money borrowed from a third party?  How could an income guaranty be said to be an “investment” if the employer or hospital lender has a legal right to the return of its money, which is usually enforceable against the physician herself? (Investors usually don’t have the right to the return of their money—although certainly they invest with the hope that they will get their money back, and then some). In these situations, pushing back on a non-compete because of the absence of a legitimate protectable interest seems justified. 

In any event, one must be extremely careful in agreeing to a non-compete with a private practice where a hospital recruitment agreement is involved. For reasons of compliance with the Anti-Kickback Statute and Stark Law, hospital recruitment agreements require the physician to relocate to, and practice in, the hospital’s service area. If you agree to a post-employment restrictive covenant with your employer that could potentially preclude you from practicing in the hospital’s service area while the recruitment agreement is still in effect, then you may find yourself in the unenviable position of having to choose which contract to breach: your non-compete with your former employer or your recruitment agreement with the hospital. 

You can avoid this situation entirely by refusing a non-compete in situations where a hospital recruitment agreement is involved. If your employer insists on including a non-compete in your employment contract anyway, then be sure your employer agrees to indemnify you against any liability arising out of the recruitment agreement if your employment is terminated without cause before the recruitment agreement expires. Also, don’t accept a non-compete in the recruitment agreement itself. 

2.       Suspend the effectiveness of the covenant for one year from the beginning of your employment.

Most physicians won’t be able to establish much patient goodwill in the first year of practice with a new employer. That being the case, you won’t be in a position to do your employer significant competitive harm (at least not of a kind that can’t be avoided through standard confidentiality and non-solicitation clauses) if either of you decide to terminate your employment in the first year. Even if you don’t get a grace period of up to a year, it isn’t unusual for an employer to agree to suspend the effectiveness of the non-compete for some period of time after the commencement of your employment.

3.       Limit the length of the covenant to the average length of a patient relationship in your specialty.

If you are a primary care provider, two years may be a reasonable length for a post-employment non-compete between you and your employer. Primary care physicians tend to form long-lasting relationships with their patients, and it can take a few years of repeat visits to a primary care physician before a patient will form a stable relationship with that provider. These facts may justify a non-compete with a relatively longer term.[1] But if you’re a surgeon whose relationship with any particular patient is limited to a single procedure followed by a few post-operative office visits, and your patients don’t often come back to you for additional procedures, then two years would not be a reasonable length. 

Insist that your prospective employer tailor the length of its proposed non-compete to a period of months or years that best approximates the standard length of a patient relationship (or, if shorter, the length of time it usually takes for a patient to establish a relationship with a new provider) in your specialty. For specialists performing mostly or entirely acute care, this may be a period of less than one year. Patient engagements of limited scope and duration are much less likely to foster patient loyalty toward the treating doctor. 

4.       Limit the activities covered by the covenant only to those which you have actually performed for your employer.

As explained here, many states will limit the enforceability of a non-compete, or refuse to enforce it all together, if the covenant prevents a physician employee from accepting employment with a competitor in a capacity that is unrelated to her prior employment (such as, for example, when a clinician decides to take a job as an administrator), or if it prevents her from practicing medicine generally. 

Many non-competes define the scope of proscribed activities in a way that encompasses the whole of the employer’s medical service offerings—even where the scope of services actually performed by the physician for that employer will be much narrower. Insist that your prospective employer tailor its non-compete so that it covers only those services which you have actually performed for the employer within one to two years of the date that your employment ends and the covenant goes into operation. You won’t have captured any transferrable patient goodwill through services that you either haven’t rendered in some time, or haven’t rendered at all during the term of your employment. 

5.       Limit the geographic scope of the covenant to your employer’s actual service area.

Rural practices usually draw patients from a wider geographic area than urban and suburban practices do. Specialty practices generally patients from a wider geographic area than do primary care practices. A smaller geographic scope is warranted in markets that are more competitive: patients don’t need to— and therefore usually won’t—travel as far to see a provider of your type in a geographic area where providers of your type are plentiful. 

Push back on the geographic scope of your prospective employer’s proposed non-compete by insisting that it apply only in the territory in which your prospective employer gets most of its patients. A radius of 20 miles may seem reasonable on its face, but in a major metropolitan area with chronically bad traffic (like the one I live in) 20 miles may represent a prohibitive distance to the average patient, making it unlikely that your prospective employer is really drawing many of its patients from that large an area. Use estimated travel times on Google Maps to challenge your prospective employer’s preferred geographic scope. Rather than defining the geographic scope in terms of a radius of miles, defining it instead on the basis of city or county borders or one or more contiguous zip codes may arguably be the better approach. 

You can also push back against extending the geographic scope of the non-compete into neighboring states. Each state is its own market with its own physician licensing requirements. If none of the duty posts contemplated in your employment contract extend into a neighboring state, then your employer shouldn’t prevent you through a post-employment restrictive covenant from later seeking employment in that state, if that’s what you decide to do. Your employer may be amenable to this because it may see enforcement of the non-compete in the neighboring state as too problematic due to a potential for conflict of laws.

6.       Limit the geographic scope of the covenant to the facilities of your employer in which you have actually worked. 

Many employers operate out of more than one office or facility. These facilities may be located in more than one city, county, state or region. Limit the geographic scope of your non-compete to those facilities of the employer at which you have actually worked within one to two years of the date that your employment ends. How will you generate any transferable, employer-protectable patient goodwill at a facility where you’ve never worked, or haven’t worked in some time? 

7.       Limit the geographic scope of a non-compete that applies to multiple facilities.

Employers are often more amenable to limiting the geographic scope of a non-compete that covers multiple locations. For example, if the proposed non-compete covers a ten-mile radius of each of your prospective employer’s facilities, you may be able to reduce that scope to five miles per facility by arguing that the total area covered by the covenant would otherwise be too broad and/or subject you to undue hardship.  

8.       Insert a release in the event your employment is terminated without cause.

Many states (not all) are reluctant to enforce a non-compete against an employee who has been terminated without cause. An employer only fires an employees in the absence of cause when her services are no longer of any value to the employer. If that is the case, then what legitimate interest would the employer have in preventing the employee from working for a competitor? Incorporate this wisdom into your own employment contract by insisting that if your employer terminates you without cause, then your non-compete obligations will terminate as well. If your employer refuses to release you, then ask that you be paid a substantial severance in the event your employer elects to terminate you without cause.

9.       Insert a release in the event you terminate your employment for good reason.

“Good reason” would naturally include termination on account of your employer’s material breach of the employment contract, but might also include your employer’s refusal to offer you partnership in the practice after a certain number of years, or a reduction in your total compensation in any year of more than 25%. 

10.   Carve out an exception for non-profit indigent care and teaching.

Taking a paid, post-employment position with a non-profit organization that provides care to indigent patients or on a medical faculty as an instructor aren’t the sort of activities most healthcare employers would care to prevent you from doing with a non-compete. If work like this might interest you, then ask for an exception under the non-compete that covers these activities.   


11.   Carve out an exception for hospitals where you have privileges.

A non-compete between you and any private practice shouldn’t preclude you from seeing patients in any hospital in which you have successfully obtained clinical privileges, just because that hospital is located in the proscribed geographic area. You've earned your clinical privileges by virtue of your own professional qualifications. You should be permitted to retain and continue using them following your employment.  And if you are a hospitalist, limit the restrictive covenant to the hospital in which you will be working, and limit its effect to the provision of hospitalist services in that hospital. 

12.   If you are a hospital employee, retain the right to go to work for a private practice after your employment with the hospital ends, so long as it isn’t a practice affiliated with a competing hospital.

Enough said.

Other Post-Employment Restrictions.

     (i) Confidentiality. 

A sophisticated physician employment contract will also contain a provision prohibiting the unauthorized use and disclosure of confidential information. Clauses of this sort should be reviewed by an attorney, but aren’t objectionable in principle. Be careful, however, to review closely how the clause defines "confidential information." Treating some items of information as presumptively confidential-- such as client and referral lists-- is acceptable; treating all information which may be learned by the physician-employee in the course of her employment as presumptively is not. Limit the scope of the clause's coverage only to information that is 1) in fact confidential, and 2) the subject of continuing reasonable efforts by the employer to keep it so.

     (ii) Non-Solicitation.

The contract will also likely include a non-solicitation provision covering patients and referral sources. Clauses of this sort are also usually enforceable—even (in some states) those that apply to patients whom you have never treated. They can be drafted in ways that make them functionally equivalent to a non-compete. Proceed with caution, and get the advice of an attorney. A non-solicitation clause shouldn’t prevent you from rendering services to any patients who have come to you as the result of your general, public solicitation efforts rather than solicitations directed specifically at them; nor should prevent you from treating any patients with whom you had no relationship during the time you worked for your prior employer. 

A clause preventing you from soliciting your employer’s staff—again, a reasonable provision routinely upheld by courts—will also likely be included. However, check this thing out if you have already been in practice and will be bringing staff with you to the new employer, you may want to expressly exclude those individuals from coverage under such a clause. Likewise, you may want to exclude patients whom you've brought with you from your prior practice.

     (iii) Anti-Moonlighting.

Your agreement may also contain a separate non-compete clause covering only the period of your employment. This is basically an “anti-moonlighting” clause, which is reasonable, and represents something of a belt-and-suspenders approach since every employee owes her employer a duty of loyalty that would be violated if she were to actively compete against her employer during the term of her employment. If you want to reserve the right to engage in paid professional activities on the side, such as consulting, lecturing and teaching, then you need to carve out an express right to do so in your employment contract. 

Parting Thoughts.

Sometimes an employer will resist amending its “standard” non-compete by arguing that every other employed physician in the organization has signed an employment agreement with an equally restrictive covenant. This argument (if true) has validity: imposing and enforcing non-competes inconsistently among the employer’s professional workforce, without a good reason, can undermine the employer’s claim that its non-competes serve a legitimate business interest. 

If your prospective employer is telling you that it can’t honor your request for changes to a proposed non-compete due to considerations of consistency and fairness, then fine. But make the employer represent and warrant in your agreement that the restrictive covenant contained therein is no more restrictive than that contained in any other employment contract between the employer and its physicians. If that representation turns out to be untrue at the time it is made, then you may have a fraudulent inducement defense to any subsequent attempt by your employer to enforce your non-compete.    

Remember: only agree to a non-compete that you are willing and able to honor, because the stakes involved in challenging it after the fact may be much too high. 

If you’ve successfully used other approaches to either whittle down or eliminate a non-compete provision from your physician employment contract, please write in and let me know. I’d like to add them to this list. 

[1] However, primary care shortages are prevalent throughout the country. If you are considering taking a job as a primary care physician in a state like Florida—which is suffering an acute and pervasive shortage of primary care physicians—then refer to tip #1 above. In places where there is a shortage of doctors of your type, any non-compete against you is arguably contrary to the public interest. Use market conditions to your advantage.

David M. Briglia is an attorney who represents physicians and other healthcare professionals in negotiating their employment and practice acquisition contracts with hospitals, health systems and group practices, and in 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, Rockville, Gaithersburg, Columbia, Baltimore and Frederick, and throughout Montgomery County, Prince George's County, Howard County, Anne Arundel 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.