I imagine you’ve all realized by now what an impact a contract can have on your day-to-day life, your job satisfaction, and your quality of life. One of the often-overlooked but highly impactful sections is within the Restrictive Covenants: the non-compete clause. Restrictive covenants are restrictions set in place by the employer to protect their financial interests. In regards to the non-compete, this is a time-bound and geographically defined workplace restriction that is deemed ‘reasonable’ (loosely defined!); for example, for 18 months after you leave the practice, you cannot work in medicine within 25 miles radius of your practice location. In essence, your employer does not want you to move into an office across the street and take all of your patients (and the clinical income generated by them) with you! I personally find the non-compete to be an antiquated concept given that most patients are restricted by their insurance and I would love to see this section written out of contracts…unfortunately that is simply not the reality at this time, so let’s dive into the details and strategize how to address these restrictions.

Why should you care about the non-compete? You might not! I love moving from one city to another or one state to the next, so I hardly think twice about my non-compete. I’m perfectly happy to move from Wisconsin to Washington to Colorado to Utah as I’ve done. But I recognize I’m in a fairly unique situation that allows me to do this. On the other hand, many providers may have selected their location intentionally. Perhaps your family lives locally and you want to live close by. Perhaps your favorite trail system is in that town and you can’t imagine hiking or biking anywhere else. A friend of mine has a husband who is partner in a law firm, three kids who are happily in school, parents, siblings and in-laws who are all within thirty minutes’ drive; they never want to leave! A physician I worked with recently chose a practice that is proximal to her husband’s family’s business as he is planning to take over and run this; they also have no intention of leaving! Both of these providers have non-compete clauses in their contracts that need to be carefully understood and negotiated to protect their interests and their families’.

How can you protect yourself around the non-compete clause? Here are four creative negotiation strategies you can use:

  1. Keep it fair: There may be certain situations that you could negotiate to void the non-compete. For example, no-cause termination by the employer, non-renewal by the employer, for-cause termination by the physician, no partnership in a defined period of time would all be situations in which it seems only fair that the non-compete be forgiven. Although these seem like obvious reasons to void this section, oftentimes this is not already within the contract.
  2. Situation specific: Create clinical situations that are exempt from the non-compete. For example, as an OBGYN you may be signing a contract for a full scope practice including clinic, call, and OR time. An employer may not see you as a competitor if you go into a hospitalist/laborist role. Another provider I worked with is a Nephrologist and was able to achieve an addendum that allowed work in general Internal Medicine for the duration of the non-compete. We have successfully negotiated these caveats for our physicians in the past.
  3. Defined location: Select one location as the primary location for your non-compete. Some contracts will outline your non-compete as effective from any clinic or hospital location you worked for the duration of your contract. If that encompasses five clinics and three hospitals now and the employer adds two more next year, your non-compete area may black out entire cities or corners of states! If you can agree with the employer on your primary location and identify that as the only site for your non-compete, at least you know your exact margins and can plan accordingly.
  4. Timing matters: The non-compete becomes effective when you and your employer sign the contract. Whether you leave your position after two weeks, two months, or two years, you are bound by this clause. Given how long it can take to build a practice, you could negotiate that the non-compete only takes effect if you stay with the employer for 6 or 12 months. Prior to that time you are unlikely to have built a large, stable patient base so it has less of an impact on the employer’s regular business in that shorter time frame.

The above-mentioned suggestions are options that can be negotiated into your contract. Some employers truly will not change the language of their standard contract, so the body will stay the same, but an addendum or formal letterhead can be attached that will personalize the contract to your needs.

Another question we are often asked is whether you can just take a job within the radius and hope they never notice or choose to act on the violation. Although it’s ultimately up to you, that can be a very expensive mistake and is unlikely to be a risk worth taking. If brought to court, you could be in a very expensive and stressful legal battle, and some contracts even stipulate that you will pay the employer’s legal fees if they need to take you to court for a violation of this cause. That’s two sets of legal fees for you whether you win or lose! Money that could likely be much better spent. Some jobs will identify a pre-set buyout price, for example you could pay the employer $250,000 and work wherever you want to your heart’s content. It’s generally a hefty sum, but if you’re comfortable with buying your freedom at that price, by all means, at least you know. Otherwise, it’s probably not worth the risk.

So how do you ride out a non-compete? You find a job that doesn’t violate the non-compete! That may be a job you need to drive an hour or more to reach. Or you could work Locum Tenens through your non-compete and travel throughout your state or elsewhere in the country to bide your time. You may learn to love it! Or you may appreciate the hassle of a non-compete.

How does this clause look across the nation?
In terms of federal regulations, in 2021 President Biden signed an executive order that urged the Federal Trade Commission to limit or ban non-compete agreements. This was in the hopes of promoting competition and increasing wages. At this point in time, The Freedom to Compete Act is currently stalled in Congress and faces an uncertain fate. We eagerly await an update as this would alter an entire section of the contract in a heartbeat and serve physicians well as they explore alternative competing opportunities. Check out our 2021 blog regarding the original order for more details.

Some states have taken these non-compete clauses into consideration and initiated rulings at their level. Non-competes are generally non-enforceable in California, Oklahoma, Montana, and North Dakota. Other states that limit non-competes in certain situations include Massachusetts, Colorado, Connecticut, Delaware, Florida, Indiana, New Hampshire, New Mexico, Rhode Island, South Dakota, Tennessee, Texas, and West Virginia. As of April 1, 2022, the District of Columbia has perhaps the most restrictive law with a few caveats. Given the tide of potential federal changes, it is important to stay apprised regarding both state and federal law and how it applies to physicians and their contracts.

Let us at Contract Diagnostics help you review your contract and we’ll be sure to help you better understand your non-compete and negotiate safety nets for yourself and your family. No one contract is perfect for every physician, we’re all unique, so let us help you identify and negotiate your unique employment agreement.

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