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Physician Contract Negotiations: The Noncompete Clause

While there is some momentum on both a state and federal level to make noncompete agreements unlawful, at the moment, noncompete clauses are commonplace in physician contracts. As such, noncompetes are one of the most commonly negotiated items in physician contracts. Many physicians will ask for the noncompete agreement to be waived during contract negotiations, but then ultimately end up signing them when the employer says the noncompete is non-negotiable. Below, we outline what to pay attention to in a physician noncompete agreement and discuss how to negotiate the best terms possible if prospective employers refuse to drop the clause. You should also discuss this with an experienced contract attorney who specializes in physician employment agreements, as they will be more aware of the local regulations and trends in your region.


Questions about the FTC vote to ban noncompetes? Check out our page What the FTC Vote to Ban Noncompetes Means for Physicians.


Disclaimer: Please do your own due diligence before making decisions based on this page. Nothing on this page constitutes formal or personalized legal advice. Laws vary based on location and while this information is accurate to the best of our knowledge, may not be up to date or apply in your location.  We are not formal financial, legal, or otherwise licensed professionals, and you should consult these as appropriate. To learn more, visit our disclaimers and disclosures.



6 things to negotiate in your physician noncompete agreement


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What is a noncompete clause?


A physician noncompete agreement (also called a restrictive covenant agreement or noncompete clause) is a provision often included in physician employment contracts that restricts the physician’s ability to practice medicine in a specific geographic region for a set period of time after the termination of the employment agreement.  The stated intent here by hospital systems and private practices is to limit the ability to compete with their prospective employer in the future, either by joining a competitor group or by starting their own practice. These employers would argue that they are hurt financially by investing the time and money into helping a physician to build their practice, only to have the physician leave and have their patients follow them. 


On the flip side, this can be very consequential to a physician’s ability to leave a bad situation, as discussed below.


Restrictions in noncompete clauses can be based on:

  • The employer’s location(s) and the distance from those locations

  • The employer’s major competitors

  • A length of time the noncompete is in effect for

  • The circumstances in which the physician leaves (terminated with or without cause, resignation, at the end of a contract versus mid contract, how long the physician was employed, etc)


Unfortunately, there is no standard noncompete clause, so ultimately the way that an agreement looks is based on what both parties agree on. Typically, these are in effect 1-2 years, but can be more. Often times, there are different terms based on the circumstances of the separation. Additionally, the way these are enforced varies widely, as discussed below.


Why does a noncompete agreement matter for physicians?


A poorly negotiated noncompete clause can make it extremely difficult to leave a bad job if you are geographically restricted to a certain area. Many physicians set down roots in an area, have family in an area, or have a spouse that also has a professional career in a given geographic region that makes the idea of moving less palatable or even impossible. By restricting the ability to practice within a certain area, many physicians find themselves in a position where a noncompete precludes them from finding another job that may be a better fit for them without uprooting the rest of their lives. 


While most physicians hopefully take jobs that they can see themselves staying in, the truth is that especially with rapid changes in the healthcare macroenvironment, physicians find that a job that may have seemed ideal when they first took it turns out not to be a good fit, either because the job changes or because their life goals change.


 An ill-fitting position is one of the leading causes of physician burnout, so negotiating a noncompete clause either out of your physician contract entirely or severely limiting the scope of the agreement can help protect you down the road.


Noncompetes are also important for physicians with side gigs or with entrepreneurial business endeavors on the side, as they could limit your ability to start or continue an existing side hustle or business, such as moonlighting or locums.


Are noncompete agreements even enforceable?


This can vary depending on where you live, as it is regulated on the state level. 


The fact is that most physicians don’t even find out if their noncompetes are enforceable when contemplating leaving, as the idea of getting into a legal battle with employers with much deeper pockets is enough to turn many away from pursuing it.


Certain states have put legislation in place to virtually eliminate or void noncompetes, including:

  • California

  • Colorado

  • Massachusetts

  • Minnesota

  • North Dakota

  • Oklahoma

  • South Dakota


Other states may limit the enforceability of the noncompete to only what is deemed “reasonable” with regard to time and geographic area and as a means to protect the “legitimate” business interests of the employer. Others limit the restrictions employers can include in noncompete clauses, such as the distance and/or maximum duration. Some states have exceptions for noncompetes, such as the sale of a practice.


The changing landscape of the legality of noncompetes is just one of the several reasons we recommend having a physician contract attorney review your employment agreement during the negotiations process. A local attorney will know the laws in your particular state, and a lawyer used to working with physicians can be an invaluable resource while negotiating your contract. Depending on how many physician clients they work with, they may even be aware of prior litigation between physicians and the employer in question and know how likely the employer is to negotiate or enforce a noncompete and/or examples of what has stood up in a court of law.


What happens if I ignore my noncompete or it’s enforceable?


The employer could file a lawsuit against you. This could leave you liable for their monetary damages, court costs, attorney fees, etc. if you lose the suit. This also doesn’t include the cost of your legal representation in the case. 


The employer could also get an injunction from the court, which would demand that you cease your new position or practice immediately.


While you may ultimately win the case, especially if your noncompete is deemed unenforceable or unreasonable, we all know that the legal system takes its time. Being caught up in red tape can have several negative consequences while you wait to get the case sorted, including loss of income during this time if you’re not able to practice, and having to come up with money for the corresponding legal fees. Many employers know this and use this as leverage.


Again, this speaks to why it’s better to be proactive rather than reactive. Always make sure that your contract is negotiated to best protect yourself, and then hope you won’t actually have to. Much like a prenuptial agreement, it’s best to come up with fair terms when everyone is friendly, rather than navigate this in a hostile situation.


What are some tips on negotiating a physician noncompete agreement?


Many employers will start out negotiations saying that a noncompete clause is non-negotiable. Before you take this at face value, you should try and see if you can negotiate it out regardless during early contract negotiations . If you have any unique circumstances for why this would be particularly bad for you and you know you have some leverage, mention those. For example, “Unfortunately, I have family in the area and having to leave the area would significantly diminish my happiness.. As I have multiple offers, I am prioritizing those that don’t have a noncompete clause.” You may be surprised how quickly a “non-negotiable” noncompete agreement can disappear if they really need you or want you.


Assuming that this doesn’t work, you still have room to negotiate the specifics of the clause. Below, we cover some common areas you should negotiate to reduce the impact of your noncompete agreement.


Apply conditions for employment termination

Any reasonable employer should understand that the circumstances of termination matter. For example, an employer should never be able to terminate your employment without cause, but still preclude you from being able to practice in the area via a noncompete agreement. Similarly, if you terminate your employment with cause or because the employer asked for a change in employment terms (changed the terms of your compensation or work requirements), or because your employer was bought out or merged with another entity that you no longer wanted to be employed by, you could argue that your noncompete should be either unenforceable or severely reduced. Another example could be that you are helping them to start a new location which never gets off the ground due to circumstances beyond your control, in which case you should be free to leave after a mutually acceptable period of time/attempt, without having the noncompete clause. Check for the terms in these situations and negotiate them in if they aren’t addressed.



Limit the applicable locations to your particular facility

If you are negotiating for a job with a larger healthcare system or hospital or a private practice with several offices, they may include all or multiple locations within the noncompete agreement, even if you only see patients in one specific location. In these situations, negotiate for the noncompete to only include the location(s) you actually work at regularly instead of every facility they have in the city, the local region, the state, or beyond, or locations that you only provide call coverage for but don’t actively have a patient base at.


Limit the distance from applicable locations

Most likely, your prospective employer will include a radius from that location where you won’t be able to practice if they choose to enforce your noncompete. It could be 10 miles or 100 miles, and this distance could be defined in different ways (driving distance, aerial, etc). Think about where else in the area you might want to practice, and think about how far you’d be willing to drive on a daily basis. Actually Google the distances from your location to any potential practices or employers of interest. Based on how much their proposed radius would limit your ability to seek employment with other facilities in the area, negotiate this radius down. Obviously, less is always better, as you don’t know what practices could spring up within the radius in the meantime that you may consider in the future.


Limit the time the noncompete remains in effect

This is critical to decrease as much as possible, given that so many physicians and their family’s rely on regular cashflow. You may be able to go 5 months without income, but not a full year, and you may also worry that your skills will atrophy if you’re out of practice too long. Even if you can fill the gap with options like locums work or side gigs, or if you don’t need income because you’re financially independent, not having benefits like health insurance for a prolonged period of time may be of concern.



While standard noncompetes are 1-2 years, if you have leverage, you may be able to negotiate this down or even change the length of time based on specific circumstances. The more conditions you can apply and the shorter the noncompete is in effect, the less likely it is to be the reason you stay at a bad job because of the need to be employed.


Restrict based on length of employment

There are various ways to do this, of varying complexity. Noncompete agreements can have what are known as sunrise and sunset clauses. With a sunrise clause, the length of the noncompete enforceability becomes limited to the length of your employment with the company, up to a certain limit. With a sunset clause, the length of the noncompete enforceability is reduced depending on how many years you’ve been working for the employer. You could also generate your own terms based on what you think is reasonable.


Restrict the noncompete to the subspecialty or specific skills

Your employer is likely hiring you to fill a specific gap, which in some cases may reflect a particular subspecialty or skillset. For example, if they hire you to start a new program in a new area of interventional work that you have specialized training in as an interventional cardiologist, you could make the argument that you could join another group and not do those specific procedures without creating competition for them. Another example may be if you have a fellowship in psychiatry such as addiction medicine, and you’re working in addiction medicine for the employer. If it doesn’t work out, you could ask to be able to build a separate psychiatry practice not based on addiction. This way, you leave options open to leave without directly competing with your current employer.


Specify specific competitors or practice environments

Another way to limit a noncompete is to restrict what potential employers it addresses. For example, if there are two major health systems in town and each one’s main competition is each other, your employer may not care if you join a small private medical practice, but may care a lot if you join the other health system. Another example may be if you work for a private practice and decide to leave to start a direct primary care (DPC) practice, knowing that the different payor models attract different patients, the private practice may not mind this as much as if you join their local competitor insurance-based private practice.


Where can I get help reviewing my physician contract?


If you have a contract you’re reviewing and negotiating and don’t know where to start, or need a professional to assess the deal before crossing t’s and dotting i’s, explore our other resources below. By spending more time upfront during the negotiations process, you can help protect your freedom to practice without legal hurdles or facing tough decisions such as moving. It’s well worth the investment to avoid issues down the road. You don’t know what you don’t know, and having another pair of eyes could save you time, money, and frustration, as well as keep employment options open.


Find legal help using our attorney database for physicians, which includes local and national physician contract lawyers. While you may be negotiating your first or second contract, contract attorneys have reviewed hundreds. They know the ins and outs, common red flags, and can even help you understand the fair market value for salary and more.


Learn more about negotiating physician contracts and job searching across our website



Conclusion


There are many ways to decrease the burden of the noncompete clause, and these should be negotiated down as much as possible to provide you with the most options upon exit, should that happen. Additionally, the list of tips above are just a place to start - don’t be afraid to get creative. Remember, if you don’t ask, you won’t get!


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