Content Highlights
Texas law allows physician non-competes to be enforced only when they meet specific statutory requirements. One requirement involves a “legitimate business interest” possessed by the hospital or clinic.
Gardner Employment Law has handled hundreds of non-compete agreements. In this article, we explain what a “legitimate business interest” means.
What Is a Legitimate Business Interest?
A legitimate business interest includes specific, protectable concerns that justify limiting competition. For physicians, this could include proprietary techniques created within the practice, patient relationships, patient data, or other sensitive information.
Employers are required by law to demonstrate how a former employee’s competition might jeopardize a specific business interest. If a clinic possesses no trade secrets, special techniques, or patients that generate revenue, a court likely will not enforce its non-compete,
Texas Law on Physician Non-Competes
Section 15.50 of the Texas Business and Commerce Code contains the necessary elements for a valid physician non-compete. While physicians are protected by subsection (b) of the statute, subsection (a) applies as well. Subsection (a) contains the required element of a “legitimate business interest.” Other required elements in that portion include reasonable limits on the
- Time during which the non-compete applies,
- Geographical area where the non-compete will apply, and
- Scope of the physician’s activities that are prohibited during the effective period of the non-compete.
These provisions aim to support both business continuity and public access to care. We discussed the protections for physicians found in subsection (b) in “What Rights Does the Texas Physician Non-Compete Statute Provide?”
Developments in the National Landscape
In 2024, the Federal Trade Commission (FTC) proposed a rule to restrict or eliminate many non-compete agreements, including those in healthcare. A federal judge in Dallas ruled against the FTC, and the agency did not appeal the ruling to the Fifth Circuit Court of Appeals. Thus, the case ended with the law remaining as it was before the FTC proposed its new rule.
Case Example: Evaluating the Business Interest
A cardiologist in Austin agreed to a non-compete that restricted practice within a 50-mile radius for two years. The cardiologist moved to a non-profit provider who treated indigent patients. Because there was no true competition, the client possessed no true business interest to be enforced.
This situation shows how the enforceability of a non-compete depends on what the agreement actually protects. In the matter for the cardiologist client, there was no business interest to be threatened by a non-profit organization.
Conclusion
Physician non-compete agreements must serve a legitimate business purpose to be enforceable under Texas law. If you have a question about moving to another practice location, at Gardner Employment Law we can answer your legal questions. Give us a call.