A Refresher on Noncompetes for Health Professionals
June 20, 2014
A recent article in the New York Times examined the growth of noncompete agreements, noting “Noncompete clauses are now appearing in far-ranging fields beyond the worlds of technology, sales and corporations with tightly held secrets, where the curbs have traditionally been used. From event planners to chefs to investment fund managers to yoga instructors, employees are increasingly required to sign agreements that prohibit them from working for a company’s rivals.”
Health professionals, and especially physicians, have for countless years been required to execute noncompetes and other restrictive covenants as part of their partnership agreements or employment agreements with professional practices, healthcare facilities and institutional providers. While nothing new, noncompetes and restrictive covenants continue to be an important consideration in any professional partnership or employment situation.
There are certain key points which the parties must carefully consider regardless of which side of the transaction they are on. New York courts will consider the following when determining the enforceability of a noncompete or restrictive covenant: (a) the practice/employer’s need to protect legitimate business interests (such as patient lists, payor contracts and payment rates, and the terms of its business arrangements), (b) the individual/employee’s need to earn a living, (c) the public’s need to access the services of physicians and other health professionals, and (d) the reasonability of the time, scope and geographic areas restricted by the agreement.
Common restrictions include non-solicitation of a practice’s patients and employees for a period of time following separation; prohibition on the practice of medicine (or the individual’s specialty) within a certain mile radius of the office or practice site(s) (or within certain zip codes) for a period of time. Moonlighting during the term of employment or affiliation may also be restricted. Parties to these agreements may consider ways to make the restrictions less burdensome, which could include severance payments or full or partial release from the restrictions if the individual is terminated without cause or his/her employment agreement is not renewed. Commonly, a practice or employer may be entitled to injunctive relief (court order) and liquidated (monetary) damages for violations of the restrictions.
Employers and employees should recognize that reasonable restrictions are enforceable, but also that litigation over enforceability can be expensive and time-consuming. The parties to an employment agreement for a cardiologist might recognize that a restriction on practicing cardiology for 6 months within 5 miles from the practice’s offices in Uniondale may be considered reasonable and likely to be enforced, while a restriction on the practice of all medicine for 5 years in the counties of Nassau, Suffolk and Queens may not be considered reasonable; they can negotiate the restrictions accordingly.
Discussion of noncompetes and restrictive covenants should be part of an overall discussion with competent legal counsel regarding potential employment and partnership agreements. The restrictions should be carefully reviewed and understood before executing agreements, as their impact may be felt by the parties for years after execution of the agreement.