Physicians have a right to buyout of a non-compete agreement

Physicians’ Right to a Buyout of a Non-Compete

Texas physicians have a right to buyout from a non-compete agreement. In fact, Texas law requires that a physician’s non-compete must contain a buyout provision, a right that is unique to physicians.

If you need an expert opinion on a physician’s non-compete to make sure you can continue treating your patients, at Gardner Employment Law we can help.

What is a “Buyout” in a Physician Non-Compete?

The Texas non-compete statute provides that all physician non-compete agreements must allow a departing physician to end her or his non-compete agreement by paying the clinic or association a certain amount of money.  The buyout requirement is contained within Section 15.50(b) of the Texas Business and Commerce Code.  If a non-compete agreement fails to include this buyout provision, the non-compete is not enforceable.

This “buyout” provision in physician non-competes is a right that is exclusive to physicians in Texas. Professionals in other fields do not enjoy this right.  The law still protects trade secrets and confidential business information in the healthcare setting.  As we explained in The Legal Meaning of Confidential Information, the obligation to maintain the confidentiality of a former employer’s information does not require a contract or any document to be enforceable.

What Rights Are Unique to Physicians’ Non-Competes?

Texas law recognizes the importance of patients’ health care, even in the presence of a non-compete agreement.  When a doctor is leaving a medical clinic, many times the patients prefer to continue to see that particular physician, rather than start over with a new healthcare provider.  For that reason, Texas law requires, in addition to the buyout, that the clinic or association:

  • Provide access to medical records: The departing 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 year previous to the physician’s departure
  • Allow for continuity of care: The non-compete agreement cannot prohibit the physician from continuing to treat patients with an acute illness (even after the physician leaves)

The same factors that determine the enforceability of commercial non-compete agreements still apply, such as a reasonable geographic area, time period, and scope of activity that are restricted by the non-compete agreement.  The “reasonableness” of these factors will be determined by a Texas Court. However, the option for a physician to buy out her or his non-compete agreement is a right under the statute.

How Much Do Physicians Pay to Buy Out a Non-Compete?

The Texas statute requires that a physician’s right to buyout the non-compete restriction must be set at a reasonable price.  If the parties cannot agree on the price, the 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 as to the price is binding on the parties.

In other words, if the physician elects to compete despite signing a valid non-competition covenant with a buyout provision, the physician must pay the agreed amount or elect to have a reasonable price determined by a court-appointed arbitrator.

The statute does not define what is a “reasonable price.”  The Texas Court of Appeals instructed in Sadler Clinic Association v. Hart that “price” in the ordinary sense means the cost at which something is bought or sold.  This indicates that it is the value of the physician’s practice that should be the reasonable price of the buyout.

How Do I Buy Out My Non-Compete Agreement?

If you want to buy out your non-compete agreement, make sure that the amount approximates the value of your practice. Think about the value of your skills, medical expertise, and patient relationships, which constitute leverage in your negotiations. You may want to engage an expert to review your practice to determine its true value.

The best time to determine the reasonable price for your practice is before you sign the non-compete agreement.  Consult a lawyer who can give you legal advice on this matter before signing the contract.  If you have previously agreed to what turns out to be an unreasonable price, you may be faced with a court-appointed arbitrator who will determine the amount of the buyout.

Contact Us

At Gardner Employment law, we are experts on employment contracts and non-compete agreements. If you’re a physician who wants to ensure continuity of care after departing from your current physicians association, give us a call.

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