Non-Compete Clauses in Physician Employment Contracts

Oct 2nd, 2007 | By | Category: Physician Practice

When physicians join a practice they are often asked to agree to a covenant not to compete, also known as a restrictive covenant. These non-compete clauses in employment contracts ARE actually enforceable in most states.

There are several key provisions in this kind of contract that should be carefully considered and negotiated, including:

  • The amount of time that the non-compete provision should restrict you from competing with your former practice. A common duration is two years.
  • The geographic description of the area you are restricted from competing in. In densely populated areas this may only be a few mile radius from the old practice but in a thinly populated area it could be much larger.
  • The scope of practice you are restricted from competing in – if you are in an OB/gyn practice it might be permissible to go into internal medicine without worrying about violating the agreement but for most physicians this is not an attractive option.
  • Malpractice insurance often is written on a claims-made basis, which means that you need to think about the cost of a tail policy to cover claims made after you leave your employer for acts that took place before you left them. This should be clearly spelled out in the contract, as this is a major expense. There are a few possibilities for how this can be worked out:
    • Ideally you may get the practice to cover the entire cost
    • You could agree to split the cost
    • Or you could agree that if the practice asks you to leave they pay for the tail and if you decide to leave, you pay for the tail — if you are going to leave to start your own practice you may be able to continue with the same insurance company without the need to get tail coverage. Obviously this is something you don’t want to guess about, so do your homework before you decide this is a non-issue. Remember that if you are joining a new practice, you may be able to get the new practice to pay for the tail coverage.
  • The cost of paying for making copies of notifying patients that you are leaving, the nature and wording of that announcement, and making patient records for those patients that decide to leave the old practice and stay with you can also be significant and the cost and who pays for it should be negotiated as part of your employment contract. There is an obvious tension between medical ethics and the economic interests of the existing practice, so it’s essential to agree that this will be done and how it will be done or you could find yourself in a difficult situation, as the practice will have no incentive to be cooperative.
  • Accounts receivable and bonus payments may be a substantial part of your compensation and they may be forfeited unless they are accounted for as part of the employment contract
  • Rather than placing restrictions on you after you leave a practice, you could agree to a cash payment paid at once or over an agreed period of time, as liquidated damages. This tends to keep everyone out of court.

When entering into an employment contract or renewing one, you should enlist the help of a lawyer who is expert at negotiating employment contracts for physicians.

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