Are Non-Competes Enforceable for Texas Physicians?

Are Non-Competes Enforceable for Texas Physicians?

Simple answer: if a physician non-compete meets the requirements of Texas law, it is enforceable.  Harder question: is the non-compete in my physician contract enforceable?  Answer: it depends.

Non-compete agreements, a/k/a covenants not to compete, are present in almost every physician contract I see these days.  Having represented both individual physicians and practices that employ physicians, I understand the large importance of these agreements for both sides to an employment agreement.  However, I often see individual physicians that have signed non-compete agreements that are very restrictive to their futures and/or causing major problems for the physician.

Indeed, the Texas Medical Association warns: “know what you sign” and “restrictive non-compete clauses can ruin you.” As such, Texas physicians should get legal advice before agreeing to any non-compete. Unless you work for the same practice for your entire career, the effects of a non-compete you signed are likely to come up. You can make sure that non-compete is not a major problem by ensuring the agreement you sign in the first place is fair.

Texas Requirements for Physician Non-Competes

Physician non-competes in Texas must first meet the requirements of the general Texas law on non-competes. While the legalese in this regard is less than straightforward (and thus has been fought over for decades), the essential requirements are: (1) reasonable time restrictions (usually two years or less); (2) reasonable geographic restrictions; (3) reasonable scope of activity restrictions; and (4) must be tied or be part of another enforceable agreement. More generally, it must also be limited to what is necessary to protect a reasonable and legitimate business interest of the employer.

In addition to these requirements, non-competes as applied to Texas physicians have special requirements. These include: (1) access to a list of patients seen or treated in the last year and access to medical records of patients with authorization; (2) a reasonable buyout of the non-compete; and (3) the ability to provide continuing care and treatment to patients during the course of an acute illness. These requirements are spelled out in more detail in the statute, Section 15.50 of the Texas Business and Commerce Code. If any of these requirements are not met, the non-compete may be unenforceable.

Unlike non-competes in other professions, most of the physician non-competes I review meet all of the requirements under Texas law. I assume this is because they are usually drafted by sophisticated parties with attorneys that specialize in employment or healthcare law. But on occasion, a non-compete will be overbroad or forget to include the specific physician non-compete requirements. The problem I more routinely face is trying to help a physician who has signed an enforceable non-compete agreement but is suffering adverse consequences as a result. When physicians sign an employment contract, they are optimistic about the future and usually hopeful that a non-compete will never be an issue down the road. Of course, sometimes that is the case, and sometimes it isn’t. The best practice is to assume the best, but protect your legal interests in case things don’t work out as planned.

What is a Reasonable Geographic Restriction?

A reasonable geographic restriction will have to be determined on a case by case basis, and will depend on the nature of the physician’s practice and the nature of the employer’s practice. Most of the physician non-competes I see are limited to a small mileage radius around the physical location(s) where the physician works. Such restrictions are likely to be found reasonable. A geographical restriction extending far beyond the location of the practice or where the physician actually worked are less likely to be reasonable. The geographical restriction has to make some sense and be a reasonable protection for the employer’s legitimate business interests. For example, a large geographical restriction might be reasonable for a unique specialist who has patients come from all over the state to see her special practice. On the other hand, a city-wide geographic restriction may be unreasonable for a physician that practices in a more general field and receives patients from a certain part of town.

What is a Reasonable Buyout Requirement?

The buyout requirement for Texas physician non-compete agreements is one of the most unclear requirements. What is clear is that a Texas physician non-compete agreement must have a buyout amount, or provide for an arbitrator to determine a reasonable buyout amount. In my experience, most buyout amounts are somewhere around one year’s salary or more. And I have seen this type of amount enforced by an arbitrator as a reasonable amount. There is not much precedent in published case law as to what is a reasonable amount (probably because most determinations are made in private arbitrations), and that amount will likely vary significantly based on the individual circumstances and based on the arbitrator. Practically speaking, however, the high costs to litigate over what is a fair buyout amount can be avoided by reaching a fair amount in the first place that works for both parties.

Final thought: avoid determining if a non-compete is enforceable

The question of whether a specific physician non-compete is enforceable is an interesting question for lawyers and has led to substantial and lengthy litigation. But rather than deal with answering this interesting and uncertain legal question, my recommendation is to negotiate your non-compete and find one you are able to easily satisfy when employment ends. Of course, hindsight is 20-20 and negotiations aren’t always even, so if you are in a position where you are stuck with a non-compete you believe is unfair or unenforceable, contact an employment attorney to see what your options are.

Contact The Cook Law Firm to Review Your Physician Employment Contract

Scott Cook is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. He regularly represent Texas physicians regarding their contracts throughout the State of Texas. More information about that practice may be seen here.

Schedule a consultation with Scott Cook here.

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