What are Physician Non-Compete Agreements?

Physician non-competition agreements are often referred to as non-compete clauses or covenants not to compete. But what exactly is a non-compete agreement, the rationale, the scope and is it legally binding? Trade secrets, client information, investments into employee training and development and many other legitimate business interests are the fundamental reasons employers require employees to sign an agreement not to engage in competitive activities directly or indirectly affecting their business interests. Non-compete agreements forbid the outgoing employee from setting up competition or working for a competitor in a geographic area and for a specified period of time. Some may include provisions for the employee not to engage in a special practice for a period of time.

Nature of Physician Non-Compete

Physician non-competes often take the form of restrictive covenants against physician-employees from competing against their former employer or practice group. More often than not, a physician non-compete is modeled to prevent the outgoing employee from setting up a private practice or rendering his medical services in favor of a competing prospective employer or practice. For instance, a physician may be prohibited from practicing a line of medicine within a fifteen-mile radius of the employer for a period of one year.

The Legal Status of a Physician Non-Compete

In order to arrive at the correct position of physician non-compete agreements in a jurisdiction as large as the U.S, the state laws are the right authority on the legality or enforcement of a non-compete clause. In Arizona, physician non-compete agreements are as enforceable just like any other non-compete provision although courts tend to proceed with more caution and suspicion when it is a physician non-compete. What exactly the Arizona courts look out for is the “reasonableness” of the restrictive covenant and the ability of the leaving employee to earn a living. There are two notable court decisions on physician non-compete agreements. The most important question before the court was the reasonableness of the agreement. In Phoenix Orthopedic Surgeons, Ltd. v. Peairs, it was decided that a restraint on a physician for three years within a five-mile radius of any of its offices was reasonable while in Valley Medical Specialists v. Farber, a similar restraint was deemed overly broad, unreasonable and unenforceable because of the special facts of the case.
Hence, the enforceability of a non-compete clause is determined by the courts on the merits of each case and on the test of a “reasonable” agreement. Also, the courts may apply the “blue pencil” rule to modify restraint clauses to what the court deems as reasonable and then enforce it on the parties.

Getting Out Before It Gets Messy

With the recent Arizona Supreme Court decision, it seems getting out of the shackles of a non-compete agreement may be easier than before. However, things could still get messy because of the court would also want to enforce a contract entered into by a consenting and educated employee. Also, the blue pencil rule is a factor to consider. But all hope is never lost. In Arizona, employers tend to lose out because physician non-competes are treated with caution by the court and must be well narrowed down to the circumstances of employment. Thus, all hope will lie on the wordings of the clause and argument of the employee or his healthcare attorney. The best option will be to consult your healthcare attorney to renegotiate with the former employer (if need be) or take a look at the wordings and render professional legal advice before you proceed with any course of action..