Physician Non-Compete Agreements: Are They Enforceable in Texas?
A medical practice has a legitimate business interest in ensuring its physicians do not leave and set up competing practices in the same service area. On the other hand, an individual physician might not want to be bound by an overly restrictive covenant not to compete. As it happens, the requirements for physician non-competes are quite detailed, more so than many other types of non-competes.
Non-competition agreements, also known as covenants not to compete or “non-competes” for short, are used by a range of businesses to protect their rights and interests in the event that an employee leaves the company. Like businesses, medical practices also have an interest in using available legal measures like non-competes to protect themselves when a physician parts ways to become a potential competitor.
Although non-competes are used widely in a number of industries, their use is more carefully regulated within health care settings so as not to compromise patient health and doctor-patient relationships. Navigating both the requirements unique to physician non-competes, as well as the general limitations that apply to all non-competition agreements in Texas, is vital to ensuring they are legally binding and enforceable.
What Makes a Physician Non-Compete Enforceable?
Texas is one of the few states in the country to allow for the enforcement of physician non-competes. However, to ensure they are not overly burdensome to the parties who sign them, there are some general requirements. This includes being part of an otherwise enforceable agreement, and ensuring reasonableness and specific limitations in the following areas:
- Geographic Area
In terms of non-competes involving medical practices and physicians licensed by the Texas Medical Board, there are additional requirements established under Section 15.50(b) of the Texas Business and Commerce Code. These include requirements for:
- Access to patient lists – Non-competes must allow physicians to access lists of patients they have seen or treated within a year of employment contract termination.
- Access to medical records – Physicians must be provided access to medical records of their patients, upon patient authorization, and any copies of medical records for a reasonable fee, as established by the Texas State Board of Medical Examiners.
- Records format – Agreements must ensure access to any patient lists or medical records following employment contract termination do not require information to be provided in a format different than how they are maintained, unless specified otherwise by mutual agreement.
- Buy-out option – Agreements must include provisions to provide physicians with the option to buy-out the non-compete and a method for resolving disputes (i.e. arbitration).
- Continued care – Physician non-competes must not prohibit physicians to continue treating patients who suffer from acute illness after employment ends.
In addition to these requirements, there may also be fact-specific situations where arguments can be raised as to whether or not a physician non-compete is enforceable. This commonly involves arguing enforceability on public policy grounds, such as when smaller communities with limited options for medical care create greater leverage for allowing physicians to compete in a certain location, as compared to larger metro areas where multiple physicians offer services in multiple specialties.
Non-competes, like other provisions within a robust employment agreement, must also be tailored to the unique facts and circumstances of a given arrangement and the parties involved. This means not only meeting these additional requirements, but also reconciling effective measures to protect your rights and interests with the best interests of doctors, hospitals and medical practices, and the public. When drafted and negotiated effectively and through the careful insight and attention of a skilled attorneys, these agreements and employment contracts in general can sufficiently protect medical facilities without unfairly restricting the rights of physicians.
As Against Public Policy?
In addition to the above requirements, in certain situations, you can make an argument that the covenant not to compete is unenforceable on public policy grounds. In Texas, at least one Court of Appeals has done so. The court will examine the facts on a case-by-case basis.
Physicians in smaller towns and communities where medical care is limited have a much stronger public policy argument that the non-compete is unenforceable, as opposed to those physicians in large metropolitan areas (such as the Medical Center in Houston, with multiple doctors offering services in multiple specialties).
Enforcement of Physician Non-Compete Agreements
The foundation of any restrictive covenant clause, including a non-compete, is enforceability. This is contingent on consideration of both parties and the value each is provided, meeting applicable requirements, and crafting clear terms. Agreements that overreach in reasonableness or are constructed too broadly risk not being enforce by the court. That’s why it behooves every business—especially hospitals, whose non-competes are subject to unique restrictions—to have an attorney review and strengthen their employment contracts. By constructing contracts and clauses in accordance tailored to their needs, employers can ensure stronger protection over trade secrets and market share.
Stark Law Considerations
When drafting physician non-competes, health care providers need to also take the Stark Law into account. The Stark Law, or physician self-referral law, prohibits providers from referring Medicare and Medicaid patients for designated health services (DHS) to entities with whom they, or an immediate family member, have a financial relationship.
The Stark Law also has a number of statutory exceptions, including exceptions for physician recruitment through compensation practices or offers hospitals make to a physician in order to induce them to join a practice. Such relationships are not considered a violation if all requirements of the exception are met. Due to related regulatory concerns such as this, as well as potential conflict with mandatory provisions such as buy-out clauses, drafting non-competes and physician employment contracts in general requires a comprehensive understanding of health care laws and permissible arrangements.
Hendershot, Cowart & Hisey, P.C. Can Help: Call Today
As a firm that is equal parts business law and litigation and medical and health care law, Hendershot, Cowart & Hisey, P.C. has earned a reputation for providing the comprehensive counsel and representation physicians, hospitals, and other health care providers need to protect their rights and interests – from practice formation and employment agreements to regulatory compliance, enforcement and defense, and litigation. We know physicians provide vital services, and we leverage our understanding of unique Texas laws to ensure their ability to provide care is not compromised by any restrictive covenants reached between practices and providers, while also working to ensure agreements that are reached are compliant and enforceable.
If you have questions about physician non-competes in Texas, enforcing or defending a contractual dispute, or the services our firm provides, please call (713) 909-7323 to speak with a member of our team.