Physician Non-Compete: Restrictive Geographical Limitations

What is the Role of Geographical Limitations in Physician Non-Competes?

The role of geographical limitations in physician non-competes is to restrict the areas where a physician can practice after leaving a hospital or association to protect the existing patient base and the investment in the physician’s training. In Texas, the non-compete landscape, especially in the healthcare sector, has specific nuances that both employers and physicians should know. Geographical limitations play a pivotal role in determining the enforceability of a non-compete agreement pertaining to physicians.

The Texas statute governing non-compete agreements requires reasonableness when evaluating the geographical scope of these agreements. For example, a non-compete clause that prevents a cardiologist from practicing anywhere in the state might be viewed as excessively restrictive. On the other hand, limiting a specialty surgeon from practicing within a 20-mile radius of an established clinic may be deemed reasonable given the specific market and the specialized nature of the services. We analyzed the general concept of geographical restrictions in “How is a Non-Compete Geographical Area Determined?”

In Texas, the geographical scope needs to align with the nature of the practice, the specialty of the physician, and the region’s demographics. It’s not just about drawing a circle on a map; it’s about ensuring that the limitations are justified by a genuine business need.

When is a Geographical Limitation for a Physician Unenforceable?

To be enforceable against a physician, the hospital or association must specify an area in the non-compete that is “reasonable.”  Of course, the next question is:  What is a “reasonable” restriction?  While the Texas Covenants Not to Compete Act provides a framework for these agreements, the statute does not define or explain what is a “reasonable” restriction on the geographical boundaries.  A judge, not a jury, will decide that question based on the hundreds of opinions that have published on the subject.  Reasonableness often becomes the sole litigation point.  At its core, a reasonable geographical limitation protects legitimate business interests of the hospital or association without being overly restrictive on the physician’s ability to practice medicine and without denying medical services to patients within the geographical area.

For a non-compete clause to be enforceable in Texas, it must be linked to a legitimate business interest of the employer and the geographical restrictions imposed cannot be excessive. The size of the restricted area must correlate with the area where the physician practiced and where the physician’s patient base based was located. The physician must have had some connection with those patients, either having treated them or had the ability to reach them through marketing or word of mouth referrals.  For instance, a doctor serving a rural community might have a broader geographical restriction than one in a densely populated urban area.

If a physician and employer disagree on whether a non-compete geographical limitation is reasonable, state district judges are tasked with reforming (or adjusting) the area to align with what legally is considered reasonable. This approach ensures that while protecting business interests, physicians’ rights to earn a living are not unduly infringed upon.  The primary problem for physicians is when a large hospital conglomerate with many satellite locations specifies in the non-compete that the physician cannot practice his or her specialty anywhere within x miles of any of its facilities.  Because there may be facilities throughout the metropolitan area, the literal wording would prevent the physician from practicing anywhere within the city.  The physician would be forced to uproot his or her family and move, requiring the physician to start from scratch in a new location.

Sometimes reasonableness can work in the physician’s favor. In  Nacogdoches Heart Clinic v. Pokala, Dr. Pokala, a cardiologist, disagreed with his supervisor over patient care. The clinic severed ties with Dr. Pokala.  When Dr. Pokala started setting up his own practice in Nacogdoches, the clinic filed suit on the non-compete agreement that he had signed.  The court ruled that the non-compete agreement was unenforceable based on two key factors: (1) the restrictive nature of the agreement essentially barred him from practicing medicine, given that cardiology was his sole expertise, and (2) considering the population of Nacogdoches and the limited number of cardiologists serving the community, Dr. Pokala’s services were needed for the town’s overall health.  The court held that the geographical restriction therefore was unreasonable and refused to enforce or reform the non-compete.  The Texas Supreme Court upheld the ruling in Dr. Pokala’s favor. The legal precedent remains clear: non-compete agreements must be reasonable, particularly in the context of the medical industry and the public’s interest in having adequate medical services.

Understanding Physician Non-Competes

As we have explained above, physician non-compete agreements in Texas are designed to balance the interests of medical institutions and the individual rights of doctors. Typically physicians sign non-compete agreements when he or she joins a new practice or hospital. It is not until the physician considers leaving the practice that the non-compete becomes an issue.

Before signing a  non-compete agreement a physician should understand the intricacies of these contracts to guard against future problems and to protect his or her rights.  After studying for years and investing many thousands of dollars and usually many years in building a medical practice, it can be devastating to suddenly be forced to move to another state because of a restrictive non-compete.  In Texas, the elements for a non-compete to be enforceable are:

(1) Accompanied by or part of an otherwise enforceable contract;

(2) Supported by valid consideration (i.e., receiving either confidential information or training to use confidential information to perform the job);

(3) Reasonable in time, geographic scope, and activities to be restrained; and

(4) Does not impose a greater restraint than is necessary to protect the goodwill or other business interest of the hospital or association.

Additionally, the Texas Medical Association has guidelines that highlight the importance of ensuring that non-competes do not deprive the community of valuable medical services. This underscores that patient welfare should always be a primary consideration.

Contact a Physician Non-Compete Expert

Navigating the intricacies of non-compete agreements in the medical field can be a complex and formidable task. Whether you are a seasoned physician or just starting out, you should understand the legal implications of geographical limitations, duration, and other limitations before signing a non-compete. A physician non-compete expert well-versed in commonly used terms and clauses can offer invaluable guidance, helping you avoid hazards that could jeopardize your medical career. At Gardner Employment Law, we have years of experience in advising clients and litigating the area of non-compete agreements.  Give us a call today if you need assistance with your physician non-compete agreement.