Noncompete Agreements

Noncompete agreements are provisions in an employment contract that are intended to limit the employee's ability to compete with the employer either during the term of employment or after termination. The most common type of restrictive covenant in physician contracts is a noncompete agreement (or “noncompete”). Noncompetes are common in several types of physician contracts. In addition to physician employment contracts, noncompetes are also common in agreements involving physician practice purchases and establishment of group practices or partnerships. Any agreement that is designed to limit competition is considered a restraint of trade. Restraints of trade are not favored in a free-market society and are in fact illegal, absent proper justification. Therefore, only restraints considered reasonable are enforceable.

It is reasonable that physician contractors (whether employers, group members, partners, hospitals, or practice purchasers) would need to protect their business interests at the termination of the business arrangement. Valid business interests in physician contracts include investment in training, recruiting, marketing, and development of physicians, as well as protection of information concerning business practices and trade secrets. Client base retention is also a primary concern. It is also reasonable that physicians who have spent many years training to practice medicine would need to be free to practice their profession in the community of their choice and not be tethered to an unsatisfactory employment arrangement. Therefore, a restrictive covenant must strike a balance between these competing interests. Therefore, in most states noncompete agreements that are part of the employment contract and are designed to protect valid business interests are enforceable if the restraint is reasonable in scope, time, and place.

There are no established criteria as to how broad, how long, or how far a covenant can reach and still be considered reasonable. The reasonableness of each case is decided on its own facts and merits. Courts enforce only those restraints that are sufficient to protect the employer's interests, and no more. For instance, a family practice physician who leaves a group practice might be prohibited from opening a competing family practice office in close proximity to his or her former group but would not be restrained from joining the staff of emergency physicians in a nearby hospital. Thus, the scope of protection is limited only to the interest to be protected, that is, competition in a private family practice. The scope cannot reasonably inhibit the physician's ability to practice any kind of medicine within the same community. Reasonableness as to time and distance are treated similarly. The noncompete clause could prohibit the departing family practice physician from opening a competing practice within a few miles of the former group or perhaps within the same small community, but the protection would be too broad if it extended to the entire state, or perhaps even to other nearby communities. Again, the reasonableness would depend on the circumstances. Likewise, if a covenant restrained a physician from opening a practice for 10 years in the same community, it would probably not be enforceable. The same restraint for 1 or 2 years would likely be deemed sufficient but not excessive.

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