Non-compete clauses: What physicians need to know

January 7, 2020

There are strategies doctors can adopt before-and after-signing a contract to avoid problems with non-compete issues 

Physicians are often faced with non-compete business agreements when signing employment contracts. These may also be required of physicians when obtaining hospital privileges. A non-compete agreement, also often referred to as a non-compete clause, is when a physician agrees not to work for a competing practice or hospital within a certain period of time after leaving a job. Breaking the non-compete agreement may incur a hefty fine that is typically spelled out in the physician’s contract. 

Often, addressing the fine details of a non-compete clause after the fact adds costly legal fees. There are a few strategies that doctors can adopt before and after signing a contract to avoid problems with non-compete issues. 

Negotiating 

Some doctors are hesitant about asking for compromises when signing a contract.

For example, young doctors may be worried that a contract could be withdrawn after requesting concessions such as removal of a non-compete clause. Jon Appino, Principal and Founder of Contract Diagnostics, a firm that helps physicians with contract reviews, says that dealing with these types of hesitations is a skill. 

“There are careful ways to approach the conversation. Just like good bedside manner, you can learn how to negotiate,” he says. 

Appino explains that a physician can be creative with the requests made of an employer.

“They may not be able to change the non-compete, but that doesn’t mean there aren’t many compromises you can make around it,” he says.

Bridging the Gap 

Of course, sometimes a physician absolutely cannot avoid being penalized for breaking a non-compete agreement. Some of these agreements can impose a fine ranging from $10,000 to $250,000 for doctors. And geographic limitations may range from within 5 miles to 100 miles of the practice.

For doctors who work in large hospital systems with many satellite offices, the non-compete can even encompass all of the satellite locations. These agreements can cover a duration ranging between one years and three years after leaving a practice.

When the financial implications of taking a new job are too costly, doctors still need to earn an income before the non-compete restrictions expire.

Locum tenens work, often in different states, can provide temporary employment in various geographic regions during this time period.

Telemedicine can be another option as well. Tisha Rowe MD, founder of Rowe Network, a multi specialty telemedicine network, has worked with doctors who use telemedicine as a way to bridge the gap before they can start another job in the same town without violating a non-compete agreement.

Benefits of a Non-Compete Clause

There are some positive aspects of non-compete agreements. A practice can be faced with losing patients after a disgruntled physician leaves to set up a practice in the same town, and a non-compete agreement can reduce the chances that this could happen.

Some physicians, particularly those who have worked hard to build their group structure, often see benefits to these arrangements.

“A physician who is happy with their role could see that a non-compete agreement would protect the group and their colleagues from leaving and causing harm to the group,” Appino says. 

Drawbacks of a Non-Compete Clause

Newly trained physicians may want some time to decide if they want to stay in a city or town long term.

Often, taking an employed position for a few years before starting a practice is the most practical way to do that.  And even for those who know they want to start a private practice, most doctors need to work and save up money before they can afford the cost of opening their own practices.

With a non-compete agreement, employers have less incentive to be fair to a physician because leaving the practice may require the physician to relocate. And patients may become confused and distraught after their physician leaves without offering to continue to be their doctor.

Telemedicine 

Telemedicine is emerging as a new way of delivering patient care. However, as this patient care model is emerging, doctors may switch from one telemedicine company to anther.

Rowe explains that telemedicine companies generally do not place non-compete agreements in their contracts, and that doctors can work for more than one telemedicine firm at a time or sequentially without incurring any non-compete violations.

Rowe explains, however, that she has encountered several doctors, who were prevented from taking on telemedicine as a side job due to a non-compete clause imposed by their employers.

Hospitals and medical practices can’t survive without physicians. A physician could certainly take his or her good reputation and loyal patients and leave a practice. A non-compete agreement often presents an obstacle to doing that.

When a physician is considering an employed position or group practice with a non compete agreement, it is a good idea to discuss the expectations. A doctor needs to openly acknowledge with potential employers or partners that the working relationship needs to be evaluated first before anyone can agree to taking a major financial loss for breaking ties. And working out a non-compete agreement that is fair for everyone is one of the ways to ensure that all parties have a reasonable timetable to evaluate the professional partnership and see if it is a good fit.

Non-compete agreements are frequently challenged in legal cases.

“Many states do not allow non-competes and some states have legislation in the works,” Appino says.

Yet he still encourages doctors to check all local laws, explaining that even when a doctor hears that a non-compete is unenforceable, the contract may have predetermined damages that are tough to fight against.