AHLA_Article_Horton_and_Padgett_April_2013
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AHLA_Article_Horton_and_Padgett_April_2013
MEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013ician Employment RelationshipsRobert w. Horton, Esquire Bass Berry & Sims PLC Nashville, TNIntroductionMost physicians are familiar with non-compete agreements (also referred to as restrictive covenants or covenants not to compete), whether as employees who have been asked to sign such an agreement AHLA_Article_Horton_and_Padgett_April_2013upon beginning a new job, or as practitioners seeking to enforce such an agreement to protect their medical practices from competition. Non-compete agAHLA_Article_Horton_and_Padgett_April_2013
reements are often signed in conjunction with physician employment contracts, or when a physician joins a practice group as an owner. These agreementsMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013onship with the practice has ended. Medical practices often employ non-compete agreements to prohibit new physicians from leaving and setting up a competing practice nearby using information, training, or patient contacts that were provided by the practice.There is no nationwide standard governing t AHLA_Article_Horton_and_Padgett_April_2013he enforcement of non-compete agreements. Rather, the enforcement of non-compete agreements is regulated by state law and, therefore, differs somewhatAHLA_Article_Horton_and_Padgett_April_2013
from state to state. Although general principles of contract law apply, additional issues arise when considering non-compete agreements and particulaMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013tates limit the enforcement of non-compete agreements generally in light of public policy concerns about restricting the ability of individuals to practice a trade or earn a living. Further, many states apply special rules, either by statute or by case law, to physician non-competes in light of the AHLA_Article_Horton_and_Padgett_April_2013unique position the medical profession holds in the public interest.1This article begins with a discussion of the types and purposes of non-compete agAHLA_Article_Horton_and_Padgett_April_2013
reements, as well as the general issues that arise consistently from state to state. The article then focuses on certain issues that arise specificallMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013ompete agreements have used to avoid obstacles to enforcement, including careful drafting of the scope of restrictions, as well as the use of choice-of-law and forum selection clauses. The appendix includes a chart categorizing states according to their treatment of physician non-competes, along wit AHLA_Article_Horton_and_Padgett_April_2013h a brief citation of applicable law.Overview of Physician Non-Compete AgreementsHealthcare providers in various business forms—whether professional cAHLA_Article_Horton_and_Padgett_April_2013
orporations, limited liability companies, general partnerships, or sole practitioners—might employ a non-compete agreement when establishing a relatioMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013 enforce a non-compete as the employer, and the physician being bound by the non-compete as the employee. However, the use of non-compete agreements in the healthcare field is not limited to the employment relationship. For example, a hospital might contract with an independent contractor physician AHLA_Article_Horton_and_Padgett_April_2013for professional services and ask that physician to agree not to provide similar services elsewhere.1 A solo practitioner who wishes to bring on a newAHLA_Article_Horton_and_Padgett_April_2013
partner to expand his practice might require the new partner to enter into a non-compete. Finally, a buyer of a physician's practice might require thMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013e detailed discussion is outside the scope of this article, healthcare providers should consult legal counsel if they Wish to enter into non-compete agreements with independent contractor physicians Some jurisdictions are less likely (0 enforce a restrictive covenant against independent contractors, AHLA_Article_Horton_and_Padgett_April_2013 even where such a covenant would be enforced against an employee. Alternatively, a court might consider such a restriction on a doctor's right to praAHLA_Article_Horton_and_Padgett_April_2013
ctice medicine as evidence of an employment relationship, thus jeopardizing the doctor's classification as an independent contractor2Although this artMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013sale of a business are generally2The advantages for those seeking enforcement of a non-compete agreement are self-evident. With the assurance that physician employees will not leave and take a portion of the employer's patient base, employers can freely expand their medical practices (and assist phy AHLA_Article_Horton_and_Padgett_April_2013sician employees in doing the same), with the knowledge and comfort that their investment in such expansion is contractually protected from future comAHLA_Article_Horton_and_Padgett_April_2013
petition by current employees. A practice might also have developed proprietary business techniques, such as billing or payment methods, that it wantsMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013 practice might wish to protect its investment in the professional training it provides, especially to physicians hired fresh out of residency with little or no prior experience in a private practice.On the other hand, non-competes present substantial disadvantages to employees. To comply with a typ AHLA_Article_Horton_and_Padgett_April_2013ical restrictive covenant, the physician may need to move outside the restricted area, potentially uprooting his or her family and attempting to practAHLA_Article_Horton_and_Padgett_April_2013
ice medicine in a less desirable location. Furthermore, new doctors, who have no established reputation and thus little bargaining power, may have difMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013agreements might enhance employment opportunities for less experienced doctors, since many employers might not hire new physicians at all without the protection of a restrictive covenant.3treated with more leeway. For example, if a doctor is a partner or shareholder in a medical practice, a non-comp AHLA_Article_Horton_and_Padgett_April_2013ete agreement executed in conjunction with a buyout of the doctor’s equity interest in the practice will typically be subject to fewer constraints onAHLA_Article_Horton_and_Padgett_April_2013
enforcement. See. eg.. Wenzel! V. Ingrim. 228 p.3d 103 (Alaska 2010) ( "Unlike covenants not to compete ancillary to employment contracts, which are sMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013cillary to the sale of a business because the contracting parties are more likely to be of equal bargaining power.").3See Mohanty V. St. John Heart Clinic. 866 N.E 2d 85. 95 (III. 20C6) (noting that ■ [Restrictive covenants protect the business interests of established physicians and. in this way. e AHLA_Article_Horton_and_Padgett_April_2013ncourage them to take on younger, inexperienced doctors. Accordingly, resưictive covenants can have a positive impact on patient care.'). But see EckeAHLA_Article_Horton_and_Padgett_April_2013
rt V. Lehigh Valley Women's Med Specialties, P C., 2012 Pa DiSt & Cnty. Dec. LEXIS 226 (Pa Common Pleas Ct. Feb. 29, 2012) (finding that physician's jMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013enerally disfavor employment non-competes as a “restraint of trade" and decline to enforce them against employees absent a showing by the employer of a need for protection as defined by state case law or statutes. First, the employer must show that it has a protectable business interest that would j AHLA_Article_Horton_and_Padgett_April_2013ustify the restrictive covenant, beyond a mere desire to avoid competition. Second, the restriction at issue must be reasonably limited to the specifiAHLA_Article_Horton_and_Padgett_April_2013
c time period and geographical area necessary to protect the employer's legitimate interest. Because restrictive covenants are generally disfavored, cMEMBER BRIEFINGAMERICAN "*■HEALTH LAWYERSASSOCIATIONLABOR AND EMPLOYMENT AND BUSINESS LAW AND GOVERNANCE PRACTICE GROUPSRestrictive Covenants in Physi AHLA_Article_Horton_and_Padgett_April_2013e requirements of a legally enforceable, binding contract, courts will nevertheless only enforce the agreement to the extent that the employer can show' it has a legally recognized, protectable business interest, and that the restrictions on the employee are necessary to protect that interest.Legiti AHLA_Article_Horton_and_Padgett_April_2013mate Business InterestIn considering whether to enforce non-compete agreements, courts generally recognize three "protectable interests" that an emploAHLA_Article_Horton_and_Padgett_April_2013
yer may demonstrate to justify enforcement: (1) confidential information; (2) investment in specialized training provided to the employee: and (3) cusGọi ngay
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