Physician Non-Competes

Physicians in Texas must comply with the Physician Non-Compete Statute. However, unlike commercial non-competes a physician’s non-compete must contain a buyout provision. Also, the statute grants physicians other protections not found in a commercial setting.

Various types of contracts may contain a physician non-compete: employment contracts, non-compete agreements, compensation agreements, partnership agreements. Any valid physician contract may contain a non-compete clause.

Some states have enacted bans on non-competes against physicians, but not Texas. Hospitals and clinics know that they can restrict your practice when you leave, whether you leave voluntarily or not. Typically, they do not offer training for physicians on the legal aspects of non-competes. So you must educate yourself.

Basics: Non-Compete Restrictions Must Be Reasonable

As with any non-compete agreement, Texas law requires the hospital or medical clinic that places restrictions upon departing physicians to draft them in reasonable terms. This reasonableness requirement applies to three components:

The time period during which the restrictions apply;
The geographical area where the restrictions apply;
The scope of the activities covered, i.e., what activities the physician is prohibited from performing;

A reasonable non-compete agreement must permit physicians to work in their chosen specialty, especially if the community of patients could be at risk if the non-compete is enforced. In Nacogdoches v. Pokala, the court threw out the non-compete because it barred Dr. Pokala from practicing medicine, given that cardiology was his sole area of expertise. Also, the limited number of cardiologists serving the community rendered Dr. Pokala’s services necessary for the town’s overall health. In some instances, Dr. Pokala served as the patient’s primary care physician.

The Physician Non-Compete Statute contains another basic requirement: The restrictive covenants must not be more onerous for the physician than is necessary to protect the hospital’s or clinic’s legitimate interests or goodwill.

For example, if the hospital or clinic uses the same language in all of its physician non-competes but does not enforce those restrictions against some physicians who leave the practice, that conduct indicates that the business interests or goodwill are not important enough to be protected. This conduct of not enforcing non-compete agreements can be used as evidence if the hospital or clinic threatens to enforce its non-compete against you, evidence that there is no “legitimate interest or goodwill” to protect, or else the hospital or clinic would have tried to enforce the other non-competes.

Buyout: Must Be a Reasonable Price

The Physician Non-Compete Statute permits a physician to buy out the non-compete at a reasonable price. The commercial non-compete statute does not offer this opportunity.

The statute does not define or explain what is a fair amount that a physician can be required to pay to buy out the non-compete. The statute provides that the non-compete agreement “must provide for a buyout of the covenant by the physician at a reasonable price.” But what amount is reasonable?

The Texas Court of Appeals held in Sadler Clinic Ass’n v. Hart that “the ordinary meaning of price is not the same as that for damages.” Price is the “amount of money or other consideration asked for or given in exchange for something else; the cost at which something is bought or sold.”

The Sadler opinion indicates that the price of the buyout, paying money to the clinic to cancel the non-compete agreement altogether, should be the price that purchasing the physician’s practice would cost. One method to determine the value of a physician’s practice would be the “book value,” meaning the assets, how much gross revenue the physician brings into the clinic, minus liabilities, and how much it costs the physician to generate that revenue.

There are no other Texas cases explaining this concept, the “reasonable price” of a physician’s buyout. As of the date of this article, the Sadler case is the only opinion directly addressing the subject.

Other Protections: To Assure Continuity of Care

The remaining requirements in the Physician Non-Compete Statute relate to a physician’s right to continue to care for his or her patients. Covenants not to compete should not reduce health care.

The physician’s right to continue seeing patients that he or she treated while working for the clinic creates a direct tension with the clinic’s right to maintain its business and its source of revenue, payment of medical bills for these same patients. Obviously, the hospital or clinic wants to maintain those patients and the income that they represent.

The statute provides limited rights to the departing physician who has signed a non-compete agreement:

Access to medical records conditioned upon patient consent;
Access to a list of patients seen or treated within the previous year;
Ability to continue treating patients with an acute illness.

When a doctor is leaving the practice, some patients want to stay with that doctor. While the physician cannot use persuasive tactics to talk patients into leaving the practice or health system, patients are entitled to know where the physician has gone. If a clinic tries to enforce a rule that would ban the physician from treating patients who prefer this particular physician, such a rule would violate the mandate of continuity of care.

What Should Physicians Do Before Leaving?

These same principles apply to all entities that provide health care: large hospitals, private practices, for-profit hospitals, and nonprofit hospitals. They hire lawyers to file suits to enforce their non-compete agreements.

How do you stay out of the courtroom if you have signed a non-compete? Before you even announce your departure, see an experienced non-compete lawyer to help guide you. These waters are too treacherous to attempt to navigate them alone.

FAQs

What is a physician non-compete agreement?

A non-compete agreement is a clause in your employment contract that restricts your ability to work in a certain geographic area and within a specific time frame after leaving your current employer. It aims to prevent you from directly competing with your former employer and protect their confidential information and trade secrets.

Are non-compete agreements enforceable in Texas?

In short, yes, non-compete agreements are enforceable in Texas. As long as the non-compete agreement you signed is reasonable in scope, duration, and geographic area, it is enforceable. It must also serve to protect legitimate business interests. However, non-compete agreements can be challenged in court if deemed overly restrictive.

How can I challenge a non-compete agreement?

To challenge a non-compete agreement, you can argue that it is unreasonable in terms of scope, duration, or geographic area, or that it does not protect a legitimate business interest. Consulting with a knowledgeable employment lawyer can help you build a strong case.

Legal Topics

Content Highlights

Are you a physician with a non-compete agreement? If so, there are special provisions in the Texas non-compete statute that you may not know.

At Gardner Employment Law, we analyze non-compete agreements and advise physicians of their rights. Read further if you want guidance about physicians’ non-compete agreements.

Regular Non-Compete vs. Physician Non-Compete Agreements

Non-compete agreements restrict the ability to compete against a former employer. These agreements exist in almost every sector, including the medical field. Generally, all covenants not to compete must follow the same basic requirements found in Section 15.50 of the Texas Business & Commerce Code. Clients ask whether a non-compete will hold up in Texas. If the wording satisfies the requirements in this statute, the answer is “yes.”

The provisions in Texas statute require that every non-compete agreement must: (1) “be ancillary to or part of an otherwise enforceable agreement at the time the agreement is made.” In addition,(2) the restrictions must be reasonable and not “impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.”

In layman’s terms, this means that every non-compete agreement must:

Be an enforceable contract or be part of another enforceable contract, such as an employment agreement; and
Contain “reasonable” limitations on the scope of work, duration, and geographic area that are necessary to protect a company’s trade secrets and confidential business information.

Physicians’ non-compete agreements must satisfy additional requirements that other commercial non-competes do not. These requirements apply to persons who are licensed by the Texas medical board.

Requirements for a Physician Non-Compete Clause

According to the New York Times, “contracts with so-called restrictive covenants are now common in medicine, although some states limit their use.” Texas is one of those states. Based on Texas Law and requirements by the Texas medical board, a physician’s non-competition agreement must:

Contain a buyout provision: The physician must be able to buy out the agreement.
Provide access to medical records: The physician must be allowed access to patient medical records (with patient consent).
Provide access to a list of patients: Physicians must be given access to their list of patients that they have seen or treated within the previous year of the physician’s departure.
Allow for continuity of care: The non-compete agreement cannot prohibit the physician from continuing to treat patients with acute illnesses (even after the physician leaves).

Texas non-competes are in the minority. Some states have banned physician non-competes entirely. However, Texas is one of the few states that still permit non-compete agreements against physicians.

Clients frequently ask me how to break a non-compete. The answers lies in determining whether the non-compete satisfies the elements of the Texas statute that I have listed. Make a check list of those elements. If your non-compete fails to meet one or more of the required elements, you may be able to break your non-compete in court.

If a Physician Cannot Find Another Position, Will Texas Courts Enforce the Non-Compete?

If the non-compete agreement prevents a physician from being able to be employed in his or her field of medicine where he or she lives, Texas courts will not enforce the agreement. In American Surgical Assistants, Inc. v. Villareal, the cardiovascular surgeon lived in an area where there was little opportunity for a position in Dr. Villareal’s field, other than the one he took after leaving American Surgical Assistants. Also, there were few trained assistants available in the area. The Court of Appeals held that the non-compete agreement would hinder legitimate competition between businesses and the mobility of skilled employees and was therefore unenforceable.

If There is No Buy-Out, Is a Physician’s Non-Compete Enforceable?

The buy-out requirement provides physicians with the unique opportunity to buy out their covenants. This is not available to any other employee subject to a covenant. If there is no buy-out clause, the non-compete is not enforceable, according to Texas courts.

Do Courts Consider the Public’s Need for Medical Services in Non-Compete Agreements?

Unlike other industries, in the medical field it is difficult for a physician to transition into other areas of medical practices. This is illustrated by the Villareal case. Sections (b) of the Texas non-compete statute provides some protection so that physicians can continue to practice medicine and maintain doctor-patient relationships.

An unreasonably restrictive non-compete not only impacts doctor-patient relationships, but it can also impact the public at large. If that is the case, a court may find that the noncompete is unenforceable. For example, if a physician’s non-compete is too broad in geographic scope, a court may strike the non-compete. One city may have a particular need for healthcare providers, and that may be a factor. Or a physician’s special area of practice may be important to a certain community. In these instances, courts may determine as a matter of public policy that the restriction is unreasonable or too broad.

There are multiple factors to consider when it comes to a physician non-compete. Physicians have a relationship with the public that other commercial businesses do not have. Plus, the need for medical care applies to everyone. There are legitimate reasons to meticulously examine your non-compete and protect your medical practice and patients. Do not hesitate to take those steps and find solutions.

Are Non-Compete Agreements Enforceable in Texas?

Bottom line: if the non-compete agreement satisfies Section 15.50 of the Texas Business & Commerce Code, it is enforceable. Legal jargon can be inaccessible and hard to interpret. Do not feel like you have to navigate your physician non-compete alone. Give us a call.