Do’s and don’ts when negotiating noncompete agreements

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There are two sides to every coin. So too with restrictive covenants, also known as “noncompetes.” There are the medical practice’s side of the equation and the medical professional’s competing interests.

Common mistakes

The biggest mistake made by new physicians is to sign a restrictive covenant agreement without negotiating the terms of the noncompete clause, believing it is unenforceable. In most states they are enforceable, if reasonable. More on this to follow.

Steven I. Adler, JD
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The next biggest mistake is for a physician to sign a noncompete without negotiating it because the physician believes he or she lacks negotiating power. Upon finishing medical school, a residency or a fellowship, you may have a variety of employment opportunities that you may leverage to your advantage. Further, if you are a more established medical professional with a patient following, that may give you an even greater ability to negotiate. Even if you recognize that you have some leverage but do not want to get off on the wrong foot with a new employer, it can’t hurt to ask. The worst that will happen is the practice will tell you that it is nonnegotiable, but it is likely to respect you for inquiring.

From the practice’s perspective, if the physician is being hired right out of school, or if it is a “buyer’s market,” the practice can usually take a hard line and refuse to alter the noncompete, especially if everyone else in the group has signed one. That approach may be fair, taking into consideration what the group will spend to market and train the new physician, and the likelihood that the group will share its patient list with the new doctor (or at least introduce the new hire to various patients and referral sources). Keep in mind, however, that restrictive covenants are not an all-or-nothing proposition; there are many moving parts that can be negotiated.

Consider the nuances

Restrictive covenants are nuanced in nature in terms of things like the length of their term and scope, which include both the breadth of the restrictions and the geographic radius. All can be negotiated, but only an attorney familiar with the law can counsel you on what terms will or will not pass muster, although we will provide some general guidance below. In some states, if the noncompete is too broad, a court will not enforce it at all. Therefore, employers should be careful not to demand oppressive terms. In other states, a court may “blue pencil” it, reducing overly broad terms to make it compliant with that state’s laws such that it will be upheld. Of course, neither the physician nor practice would know this until embroiled in litigation, often years after the noncompete is executed. The good news is, if drafted correctly up front, a noncompete agreement can enable the parties to avoid litigation altogether.

What are reasonable terms that likely will be enforced by a court? Every case and every situation is different. In fact, the terms of a restrictive covenant should vary even for medical professionals in the same group. It is, therefore, a mistake to simply pull an old one off the shelf for another medical professional in the practice to sign. The law may have changed since the previous one was executed or the restrictions may need to be different, such as for a specialist rather than a general practitioner in the group.

Some generally accepted terms

Generally speaking, a one- or two-year noncompete is considered reasonable in many states. Obviously, therefore, the medical professional should attempt to keep the term to a minimum if the employer is insisting on a noncompete in the first place. A geographic restriction, such as one that precludes new employment within a five-mile radius of the group’s office, or from a particular office where the physician primarily practiced in a multioffice group, likely would be considered reasonable. Of course, if the practice is in New York City or Chicago, for example, the radius may need to be much smaller, like 20 blocks from the office. Similarly, if the practice is in the suburbs, a much greater geographic area will likely be upheld. The tighter the radius you can achieve negotiating, the more flexibility you will have should you leave the practice. As to scope, if the physician is a specialist, it would be a mistake for him or her to agree to a broad restriction such as one that bars him or her generally from practicing medicine, rather than just within the specialty, a mistake that I have seen far too often. In a state that does not blue-pencil agreements, barring a specialist from practicing medicine in general likely will be enough for a court to refuse to enforce it at all.

Other considerations

There are also other ways to deal with restrictive covenants when negotiating. For example, in lieu of a noncompete, you might offer a nonsolicitation clause, where you agree not to solicit colleagues or other employees to leave with you. Alternatively, it is reasonable for a physician to request no noncompete if he or she is terminated by the practice “without cause.” Similarly, the practice will argue that if the medical professional leaves voluntarily or is terminated for “cause,” such that the professional causes the noncompete to come into play, it would be reasonable for the practice to enforce the restrictive covenant.

There are many other mistakes both medical professionals and medical practices make when it comes time to separate, but that is fodder for another article. Having drafted and litigated many restrictive covenants over the past 40-plus years, I have observed these mistakes firsthand.

Some important takeaways

In summary, here are a few key takeaways:

• Whether you are the medical group or the professional, retain counsel familiar with the law and how courts deal with issues arising from noncompete agreements.
• Employers should only demand restrictive covenants that are reasonable and likely to be upheld in court.
• Medical professionals should object to noncompetition clauses, but if the practice insists on one, and you do not have a better opportunity elsewhere without one, offer a nonsolicitation agreement instead or a noncompete only if you voluntarily leave or are terminated for cause.
• If the employer continues to insist on a noncompete, negotiate its term (how long it would remain in place), its geographic radius and the scope of the restrictions it seeks to impose.
• Negotiating these issues at the time of hire and having a well-drafted noncompetition clause will provide more clarity as to what options the medical professional has should separation of employment occur, and this should result in less litigation.

Steven I. Adler, JD, is a partner and co-chair of the Litigation and Employment Departments, and co-chair of the Healthcare Litigation Practice Group at Mandelbaum Barrett PC.