What should physicians know about noncompete clauses before signing an employment contract?

If you become an employed physician, you will almost certainly be confronted with a restrictive covenant when your contract arrives. I'd implore you to think immediately about what you can and can't do if the job turns sour in a few years. I've seen many physicians have to sell their homes, uproot their families and move to another city because of these covenants.

Noncompete agreements are not federally regulated; instead, they are governed on a state-by-state basis. Most use a geographic restriction on practicing if you leave employment. A few states prohibit these covenants — currently California, Minnesota, North Dakota and Oklahoma. Some other states, such as Texas, partially ban these agreements. Even in states that prohibit noncompetes, contracts can contain nonsolicitation clauses that bar you from reaching out to your former patients. There also can be financial consequences to leaving employment that effectively force you to leave your area. These can include repaying the costs of promoting your practice, relocation clauses and more. Sometimes geographic and financial consequences exist together.

It is most common for a physician employment contract to include terms preventing the physician from practicing medicine within a certain distance of the current employer if they cease to be an employee. This may apply if either side decides to end employment, and it may also apply if the employer fires the physician for cause. Commonly, the restriction lasts one to two years. You must carefully consider the consequences of such a clause, preferably with an attorney. Very few physicians will want to go work somewhere far away only to return later and resume practice in their original community. Perhaps there are areas of town that would not be proscribed that would be good places to practice? You should limit geographic restrictions to allow this. Perhaps you can limit the restriction so it applies only if you voluntarily leave employment. It seems grossly unfair to allow a hospital to terminate your employment without cause and still prevent you from working in the community. Perhaps you can also limit the restriction so it prevents you only from working for a hospital competitor in your market, not an independent group or practice.

There are also restrictive covenants that apply while you are working for the primary employer. These covenants might prevent you from taking a side job such as research, moonlighting or other nonmedical work. Think hard before signing such an agreement.

If you already have a contract with a restrictive covenant, you might want to consider litigation to void the restriction. Factors a court would consider include how large the geographic limitation is, how long the restriction lasts and, often, how limited the physician's specialty is (perhaps a cardiologist can work as a general internist until the restriction ends). Hopefully you worked with an attorney when you signed the contract, but regardless, you should talk with an attorney well experienced in physician contracts if you plan to fight a covenant. Increasingly, courts are recognizing that making a physician leave a geographic area also hurts patients. The Federal Trade Commission (FTC) even tried to eliminate noncompete agreements nationally with a 2024 rule, but it abandoned the effort in 2025 after a federal court blocked the rule. If you practice in a specialty that is underserved in your community, that adds ammunition to a legal challenge.

On the other hand, consider the effects on an employer. Imagine you have a small independent medical practice and bring in a young physician on a partnership track. You spend a considerable sum supporting the new physician and introduce them to all your referral sources in the community. It would certainly damage your practice and finances if the new physician were allowed to open an office across the street and compete with you at no cost and with no restrictions. A restrictive covenant seems completely reasonable in this circumstance, as few small practices would take the risk to grow without one. Conversely, a large hospital system that brings a physician into its group, fires the physician with or without cause and then prevents them from staying in the community might be acting grossly unfairly.

The biggest mistake you can make is not thinking about this when you sign your initial contract. I'd urge you to consult an experienced attorney before ever signing an agreement not to compete.

Steven Podnos, M.D., CFP is a fiduciary fee-only planner with HB Wealth. He can be reached at Steve.Podnos@hbwealth.com, or visit HBWealth.com, or call Steve at (321) 543-1099.