Docs Fight a Noncompete Clause and Lose. Could You Get Stuck Too?

Alicia Ault

March 03, 2020

Four years ago, a lung cancer specialist felt that she wasn't getting what she needed to competently conduct research at her teaching hospital. So she looked for and found a similar — and, she thought, better — position at a nearby academic medical center. The physician, who does not want to be named for this article, thought she was home free until her employer refused to release her from the noncompete clause in her contract.

Only after a year ― and some $75,000 in legal fees ― was the physician able to work unencumbered for the new teaching facility. But the months-long court battle convinced her husband, Francisco Aécio Almeida, MD, that noncompetes are bad medicine. He has since become a warrior against the clauses.

If a doctor seeking a better opportunity is forced to leave an area beause of a noncompete clause, "the big loser is not the physician," said Almeida, director of the interventional pulmonology fellowship program at the Cleveland Clinic. "The biggest loser is the community," he told Medscape Medical News.

Almeida and his wife, now 46, were aware of the noncompete clause in her contract when she signed it, but they believed it wasn't enforceable, in part because her department head said so, Almeida said.

The clause barred her from practicing for a year within 10 miles of the hospital and also in the surrounding county, Cuyahoga, Ohio.

Almeida said those kinds of restrictions are especially onerous in academic medicine, because the centers tend to be clustered together. To satisfy the noncompete, "you have to move out of Cleveland, either to Columbus, Cincinnati, or Toledo, or you have to move out of state," he said.

A Painful Lesson

When it was clear that his wife's employer was blocking her move, the couple and their attorney, Chris Congeni, Esq, who specializes in healthcare, corporate, and employment law, tried to negotiate out of the noncompete, to no avail. Almeida and his wife then made a conscious decision to challenge the noncompete in court. She filed suit in July 2018. "We wanted to challenge the legality of the noncompete from the academic point of view," he said, adding that he hoped the case would set a precedent.

Congeni said he believed he had a case, in part because the lung cancer specialist was one of two doctors in the area with her particular focus, and she was going to be doing something almost totally different for the new employer. In addition, the laboratory work and the studies she would be doing for the new employer could not be conducted at the old hospital, said Congeni, who is with the law firm Brennan Manna Diamond in Akron, Ohio.

The judge, however, was not familiar with noncompete clauses and showed very little interest in the case, said Congeni. The former employer took the position that it never releases physicians from noncompetes, he said.

Almeida's wife went 7 months without a paycheck while the couple continued to litigate. They both looked for jobs out of state. His wife found a position similar to her old one in Rochester, New York, but Almeida could not find a position similar to his own elsewhere.

Needing to start earning again, his wife began working for the prospective employer at a site outside the noncompete area. But her old employer did not see it that way and countersued, lengthening and deepening the litigation.

After a year, the parties agreed to settle. The noncompete had expired by that time anyway.

Almeida said in retrospect that he was naive. "I thought that they were going to let this go," he said. He believed the hospital would see that a loss might invalidate its noncompete clause for all future contracts.

Many Employed Physicians Work Under Noncompete Clauses

Noncompete clauses have become ubiquitous in a variety of professions, including medicine. Fifty-one percent of respondents to a recent Medscape pollsaid they had left a job in which their contract included an active noncompete clause. A 2018 study found that half of office-based physicians and 37% of doctors employed by hospitals or freestanding centers were bound by such clauses.

There's a lot of confusion about noncompete clauses. Just over half of the Medscape poll respondents said their current contracts included a noncompete clause, while 35% said they'd had one in the past. A fifth said they weren't sure whether the clauses were enforceable, while another fifth thought the clauses could be enforced in all states. Almost half believed the clauses were enforceable only in some states.

Physicians should never assume that courts will invalidate noncompete clauses.

"That's an attitude that is very dangerous," said Eric Su, Esq, a labor and employment attorney at Crowell & Moring in New York City. Employers often try to enforce these clauses, even if they think they may ultimately be found invalid, he said.

"Assume the agreement will be enforced as written," said Ira Saxe, Esq, also a labor and employment attorney at Crowell & Moring. "Otherwise, you're playing with your career."

Assume the agreement will be enforced as written. Otherwise, you're playing with your career. Ira Saxe, Esq

"Signing a contract and then assuming that it's unenforceable — wouldn't that be the same thing as you saying your salary guarantee is unenforceable as well?" said Sara Jodka, Esq, a labor and employment lawyer at Dickinson Wright in Columbus, Ohio. In most instances, the courts will hold physicians "to the piece of paper they signed," she said.

Attorney Su said academic centers might have good reasons to restrict employees. In Almeida's wife's case, the information and expertise she gained through training or being a part of that facility might have been viewed as a protectable interest, he said.

Almedia strongly disagreed. He said that human clinical studies, for instance, are publicly available and that "it would be very rare for the average academic physician to have gained any information or expertise that would lead to unfair competition between centers."

Going forward, Almeida said he would not take a job that entailed working under a noncompete clause. But for others, he recommended negotiating every aspect — the time limit, the geographic range, and nonsolicitation of patient agreements, which are often linked with noncompetes.

The future is never predictable, said Almeida, "and when [things] change and you can't move to a job across the street because of the noncompete, you will regret not having negotiated," he said.

Feds Take Dim View; States Have Final Word

Employment laws governing noncompetes vary from state to state. Some states take a strict line against them, while others have a more favorable view. As of yet, no federal regulations cover the clauses, but that could change.

A Trump administration policy goal is to remove what it sees as barriers to a free market, including reversing a host of regulations. In 2018, the Department of Health and Human Services, the Department of Labor, and the Department of the Treasury suggested that one way to stimulate health markets would be for states to move away from noncompete clauses.

Noncompetes have been shown in some cases to be "overly burdensome and restrictive on providers," the report states. It asks that research be conducted into whether the clauses limit patient access or reduce physician supply. "By suppressing competition, these clauses may inflate healthcare prices, elevating patient and federal spending on healthcare goods and services," it states.

The US Federal Trade Commission (FTC) has taken an interest because "there's an anticompetitive nature with all of these noncompetes," said Su.

At an FTC-sponsored forum held in January, Commissioner Rebecca Kelly Slaughter said that through these clauses, "patients can lose their long-time and preferred doctors."

Given continued hospital consolidation and greater numbers of physicians becoming employees, the clauses might also give the employers greater bargaining leverage over physicians, she said. "While some argue that noncompetes serve a legitimate business interest, this raises the question of whether such a business interest is being promoted at the expense of patients," said Slaughter.

The American Medical Association (AMA) in 2016 urged physicians against entering into restrictive covenants, but some doctors believe the organization hasn't taken enough of a hard line. The AMA House of Delegates in 2019 passed a resolution urging the organization to study the impact of noncompete clauses on patient access, the physician-patient relationship, and physician autonomy and to provide education on "the dangers of aggressive restrictive covenants."

Some states prohibit restrictive covenants against doctors, including California, Delaware, Massachusetts, New Hampshire, North Dakota, Oklahoma, and Rhode Island. Texas' Covenants Not to Compete Act says noncompetes must provide physicians with a list of patients seen within a year of the contract's end; provide access to patients' medical records; offer a buyout at a reasonable price; and let physicians provide continuing care to a patient during an acute illness after employment has been terminated.

Connecticut limits the duration of noncompete clauses to 1 year and stipulates a distance of up to 15 miles from the primary practice site, according to a 2018 report by David J. Clarkan, an employment law attorney with Epstein Becker & Green in New York City.

Ohio, where Almeida's wife practices, is more friendly to employers, said Jodka. Almeida is hoping to change that and to help convince a state senator to introduce legislation in May 2019 that would ban noncompete clauses in physician contracts. But Almeida said the senators he has spoken with don't seem to have much interest in the bill.

Negotiate Before You Sign

It's best to try to negotiate the terms of any restrictions before signing a contract. Although most employers insist on their own terms, "it doesn't hurt to have a conversation," said Su.

"Your ability to negotiate is at its best when they want you," said Saxe.

"Sometimes you can reach a good result," such as winnowing a noncompete down to covering a very specific position for a year, said Saxe. The doctor might then work in a slightly different capacity for the new employer during the exclusion period.

Employers often include noncompete clauses in contracts even in states that do not allow them. They might not know any better, or their contracts may be outdated, said Su. But some do it on purpose. "It creates a disincentive for the affected physician to move," he said.

"Employers are just using this tool as a threat, even when they know they will not be able to enforce it," said Orly Lobel, Warren Distinguished Professor of Law at University of San Diego's School of Law, who spoke at the FTC in January.

Employers are just using this tool as a threat, even when they know they will not be able to enforce it. Prof Orly Lobel

It's a deterrent, but "the employer assumes the employee will not talk to a lawyer," said Jodka.

A consultation with a labor or business law attorney before signing a contract is cost-effective, said Jodka.

Jodka says that even in Ohio, she has been able to whittle at the edges of a noncompete. She reduced a 20-mile, 2-year restriction to a 5-mile, 1-year covenant for a Toledo physician. The employer agreed after she cited case law that showed that the restriction was not likely enforceable.

"Many doctors don't understand what they're signing," said Su. He advised physicians to seek counsel in order to understand the extent of the restrictions. If an employer insists on a signature before a full review, "you may want to reconsider whether or not you want to work for these people," he said.

Is There Any Way Out?

In the Medscape poll, only 8% of respondents said they were totally successful in negotiating out of a noncompete. Twelve percent were not successful, and 28% did not try.

Most poll respondents who left a job that required a noncompete said they found the same or similar type of work outside the restricted area and either continued living where were residing or relocated. Two percent said they did not work during the period, and 4% said they found different work.

Physicians seeking a way out can easily find themselves in a bind, said Saxe. "You don't want to raise that unless you have somewhere else to go, but you may have nowhere else to go unless you get a buyout," he said.

Employers usually don't offer buyouts, Saxe said. Jodka said when they are offered, they can run $50,000 or more.

She has occasionally asked the employer not to enforce the noncompete on the basis that the doctor was going to be doing something different and that he or she also agreed "that the patients are off limits," said Jodka.

Doctors can avoid being tripped up by noncompetes by not violating any confidentiality provisions or misappropriating data, said Su. Courts tend to look unfavorably on doctors who have downloaded data, no matter how innocent it might appear, he said.

Depending on the state, a noncompete might be unenforceable if there is a termination without cause, said Su.

He also suggests that doctors never gloss over an existing noncompete when talking with a prospective employer. The new employer might even be willing to help negotiate a buyout or waiver. "The worst thing is to hide such a material fact from your new employer, because ultimately you might find yourself out of a job because you misled your employer," said Su.

Alicia Ault is a freelance writer based in Lutherville, Maryland.

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