Texas physicians, unlike employees in other industries, have a right to buy out their non-compete agreement. In this article, we dissect what is “reasonable” for a physician’s non-compete buyout.
At Gardner Employment Law, we help our clients to navigate challenges in their careers by arming them with knowledge of the law. If you want to assess the reasonableness of your non-compete buyout, contact us for legal advice.
What is a Reasonable Amount for a Physician’s Non-Compete Buyout Price?
For a physician’s non-compete agreement to be enforceable under Section 15.50 of the Texas Business and Commerce Code, the agreement must contain a reasonable buyout provision. To determine what is a “reasonable” amount of a physician’s buyout, courts look at the value of the business that the departing physician can anticipate without being limited by a non-compete.
As we discuss in “Physicians’ Right to a Buyout of a Non-Compete,” the Texas Court of Appeals explained in Sadler Clinic Association v. Hart that “price” as used in the statute means the ordinary cost at which something is bought or sold. Logically, this means that the buyout price is the value of the physician’s practice.
You must calculate the dollar value of the practice area in question. That can be difficult, especially when you are predicting what the value will be in the future at the time of the departure. Some experts reason that the pre-decided price is akin to liquidated damages. If the buyout amount greatly exceeds the value of the practice, this may be viewed as a penalty which would be unenforceable.
How Can I Buy Out My Non-Compete Restrictions?
Ideally, your non-compete should contain a buyout provision with a reasonable price. In fact, physician non-compete agreements are not enforceable without a buyout price contained in the agreement, based on the court’s ruling in Novamed Surgery Ctr. of Tyler, L.P. v. Bochow.
If the other party tells you that a physician’s non-compete buyout is optional, contact a lawyer. A lawyer can help you to negotiate a buyout price so you don’t face an intense legal battle later on.
The agreement must include the buyout price so that the departing physician has an option to purchase the medical practice without the non-competition restrictions. If you decide to leave a group to open your own medical practice and want to continue in the same locale with the same patients, you pay the other party the agreed buyout price to release you from the non-compete.
If you sign the agreement and later refuse to honor the non-compete, you must pay the previously agreed buyout amount. Alternatively, if you argue that the agreed amount is unreasonable, you cannot ignore the situation. You can choose to have an arbitrator to determine the buyout price.
What if My Non-Compete Buyout Provision Isn’t Reasonable?
If the buyout amount seems unreasonable in any regard, consult a lawyer. A lawyer can help you critically examine the facts and the value of your practice to negotiate for a lower amount. The best time to decrease the amount of the buyout is during negotiations before you sign a noncompete. At that point everyone is predicting what your practice will be worth in the future.
As the New York Times reports, non-competes sometimes are a barrier to continuity of care. When a physician leaves, it can cause anxiety and may sever relationships with existing patients. This is why it is important to negotiate for a non-compete buyout that works for you and your practice.
If the parties cannot agree on the price of the buyout, the Texas statute permits them to have an arbitrator determine the price. If the parties cannot agree on an arbitrator, the court shall appoint an arbitrator to determine the price. The arbitrator’s decision on the price is binding on the parties.
You want to be in control of the decision regarding the buyout price. Otherwise an arbitrator who knows nothing about your practice determines the non-compete buyout.
Other Rights Guaranteed to Physicians
Texas grants physicians other rights not found in the commercial context. In addition to a buyout, the Texas statute governing non-competes also requires that the clinic or physicians association cooperate with the departing physician. This means they must provide notice to patients of the physician’s relocation, permit access to medical records, and allow the physician to continue treating any patients with an acute condition.
Texas law requires that a physician’s non-compete agreement also must be reasonable in geographic area, scope of activities, and time period, in addition to the reasonable buyout price. The covenant not to compete may be contained in an employment contract, or it may be a stand-alone agreement if there is sufficient consideration.
If you know your rights as a physician, you can ensure that your patients continue to get the best possible care. And you have a better negotiating position. Covenants not to compete should not be an undue burden that inhibits your ability to practice medicine and to provide continuity of care to your patients.
Safeguard Your Medical Practice
We know how crucial continuity of care is for physicians and their patients. If you feel burdened by an unreasonable non-compete buyout, contact us.