While there has been a recent trend on a state and sometimes federal level to limit or outright ban the enforcement of restrictive covenant agreements in general employment settings, individuals in the medical profession in numerous states have enjoyed, for some time, limitations on the enforcement of non-compete or non-solicit agreements. Those states typically have legislation limiting the enforcement of non-compete, non-solicit, or similar agreements. The recent spate of increased legislative action in this area involves, as always, balancing the interests of the employer or medical practice on the one hand and the physician/medical employee and patient on the other.
In recent years, the medical profession has grown from a cottage industry whereby one or two doctors work in a practice together to much larger group settings. In some cases, hundreds of doctors may practice in the group setting, especially in urban areas. These larger groups have responded to the increased costs of practicing medicine resulting from the advent of computers and other electronic methodologies and the demands of third-party payors. As part of that response, restrictive covenants have been used as a tool to limit the harm a departed physician or medical practitioner can inflict. At the same time, it is necessary for those practice groups to demonstrate better patient outcomes to obtain payment and also to address the needs of physicians and others in the medical professions to achieve more work and lifestyle balance. Large practice groups are incentivized to protect their interests due to the significant investments being made in technology and training. Meanwhile, a physician who leaves one of these large practices may find it difficult to locate a position in the same geographic area if covered by a covenant not to compete. Specialties also impact the ability of a physician to locate other employment or to institute a new practice, as a general practice will service an entire population whereas specialty practices serve a smaller percentage of the general population. Further, the capital expenditures that are likely required to launch a new practice can make it prohibitive as well.
Patients are impacted in their choice of practitioner as they may trust one physician in a group practice, and if that physician leaves the practice, the practice will try to have that patient transition to another physician in the group. In this way, the practice may be treating the patients’ needs as a commodity, where one doctor is the same as another, while in the patient’s view, this is a personal service. The covenant is a way for the practice to try to protect its investments when a patient wishes to leave the group to follow a trusted physician who is departing. Therefore, there is a need to address what a patient wants versus the interests of the practice. The statutory approach to these issues as well as some of the case law is an attempt to address this friction between these possibly competing interests. The desires of the patient or the patient choice appears to be the trend in addressing these competing interests. Of course, each medical specialty has different requirements and rural practitioners have to address patient requirements differently than urban practitioners. In the end, there are many variables in determining the use and enforceability of a covenant not to compete.
This article, after a brief description of the types of agreements that are covered by such legislation, will summarize the current state of legislatively created exceptions for medical professionals, whether any upcoming legislation is being considered, and what the future might hold for legislative limitations on the enforcement of restrictive covenant agreements in the medical field.