Hidden Time Bombs in Your Noncompete Clause

Brian W. Whitelaw, Esq; Barbara J. Kennedy, Esq

Disclosures

January 06, 2016

In This Article

Why Competition Is Restricted

Most physicians working for professional health care organizations, large and small, are working subject to a noncompete clause in their employment contract. These clauses are also known as "restrictive covenants" and "covenants not to compete." The purpose of such a clause is to restrict or define in what ways a physician can compete with their current employer in the future, should the employment relationship end. Only four states—California, Montana, North Dakota, and South Dakota—currently prohibit such clauses in an employment contract.

There are several factors to consider in the negotiation or renegotiation of an employment contract, as well as when separation from a current employer is anticipated. These are crucial junctures at which to seek your lawyer's advice about the content and scope of a proposed noncompete clause or the enforceability of an existing one. Noncompete clauses contain a number of hidden, ticking time bombs ready to explode if a physician doesn't consider them, seek them out, and avoid them.

Why do noncompete clauses exist? The reason, in part, is that your employer will invest resources in the process of hiring and training you as a physician. This gives you the advantage of entering an established practice that will provide patients and unique training opportunities. Your training and the goodwill engendered by your patient relationships make the practice more marketable and increase its earning power. In light of this investment by your employer, a noncompete clause is designed to prevent unfair competition should the employment relationship terminate.

Noncompete clauses aren't limited to the medical profession. They're very common in professions in the fields of sales, manufacturing, technology, and research and development. For example, in 2013, a restaurant enterprise in Michigan was awarded the eighth largest judgment of that year against a former chef who left and directly competed with his former employer.[1] That said, there are special nuances applicable to the health care professional that should be negotiated in a manner that's fair and equitable to both the employed physician and the practice.

A new physician is often overwhelmed when contemplating his or her first employment opportunity. There may, for instance, be enormous medical-school debt to be repaid. It's therefore a tremendous relief when you're offered a job that you feel excited about. Such an offer typically involves signing an employment agreement. That agreement will (almost universally) contain a noncompete clause.

A noncompete clause is different from the rest of your employment agreement in that it doesn't directly affect your day-to-day life as an employee. The noncompete clause could, however, have a significant impact on your future employment.

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