Non-compete Clauses: Don't Sign Until You Review This

Alok S. Patel, MD


March 16, 2022

This transcript has been edited for clarity.

"Healthcare Worker Shortage" is all over headlines like it's breaking news. In reality, it's been around for decades, but the pandemic forced people to pay attention.

Economics 101: When the supply of a good is low and demand goes up, the price per good increases. In this scenario, that good is the healthcare professional and the person who is supposed to be paying the premium is the hospital system.

Let's be real. If a hospital has a CEO making 200 times the average employee , those employees should at least have some negotiating power. We're the commodities.

Hospitals know this, which is why so many of our contracts have restrictive covenants in them.

I saw a story out of Wisconsin that speaks to how desperate some hospitals are to keep their prized employees.

A Lesson to Be Learned From ThedaCare

A hospital system in Wisconsin, ThedaCare, filed a temporary restraining order restricting seven employees from leaving and taking a job at Ascension, another hospital system.

Ascension didn't poach these employees; they just saw job offers and applied. None of the employees had a non-compete with ThedaCare.

The employees came from ThedaCare's interventional radiology and cardiovascular teams, and hospital executives said these were vital employees.

Ascension then alleged that ThedaCare "had the opportunity but declined to make a competitive counter offer to retain its former employees."

In fact, in a letter to a judge overseeing this case, an IR tech said that he applied for this job because he was looking for better work-life balance.

Seriously? Is that so much to ask for?

In the end, the judge lifted the restraining order and the employees were allowed to go work for Ascension.

Paying Attention to Non-poaching and Non-compete Contracts

This whole lawsuit got me thinking about non-poaching and non-compete agreements.

I'm no MD/JD, but I did a little light reading and it seems that non-poaching agreements between companies, including healthcare companies, can violate antitrust laws, such as section 1 of the Sherman Act, which states that these agreements may unlawfully limit employee wages and constitute illegal restraint. It's not even allowed.

Let's move beyond the non-poaching and focus on non-competes, which are very common in healthcare contracts.

These are known as restrictive covenants or non-competition covenants — basically something to keep you from going over to your competitor, which in our case is another hospital or practice group.

These were originally designed to protect company trade secrets and prevent employees from taking resources over to the competition.

In healthcare, there are some instances where this makes sense, such as if someone is a specific type of specialist or has a particular type of research, or the hospital is helping with patient or clinical trial recruitment.

I have colleagues who are primary care doctors, ob/gyns, pediatricians, and hospitalists who all have restrictive covenants in their contracts. In fact, according to the American Academy of Family Physicians, nearly 45% of primary care docs have non-competes in their contracts.

The logic just breaks down here because providing preventive care, delivering babies, or treating sepsis — none of these are "company trade secrets."

I know physicians who weren't able to switch jobs because of non-competes, and others who couldn't moonlight to make extra money.

I even know some physicians who can't work within 50 miles of their current employer for more than a year after leaving.

What are you supposed to do — move?

Once upon a time, non-competes made more sense because they prevented people from opening a competing practice down the street. But the landscape of healthcare has completely changed. Now that hospital systems are able to buy out smaller practices in a given area, the non-competes make much less sense.

If you work in a city with only a few major healthcare systems and there's a strict non-compete in your contract, you're stuck.

There is a sign that restrictive covenants may soon face some checks and balances.

The Biden administration's Executive Order on Promoting Competition in the American Economy pushes back against non-competes in favor of workers' rights.

In response, members of the American Hospital Association said the push against non-competes was misguided.


Seek Legal Advice Prior to Negotiating or Signing Contracts

Let's say you're about to sign a contract and there's a restrictive covenant in it. What should you pay attention to?

I asked Heather Macre, director and healthcare practice group leader, from Fennemore, who specializes in healthcare regulatory and compliance issues, this exact question.

She recommended that you first understand what restrictive covenants are actually enforced in your state. Some states do not enforce them at all, and other states only enforce those that are deemed reasonable.

A healthcare attorney can help you figure out what the laws look like in your state.

Prior to negotiating or signing, Heather also recommends that you get a sense of your specific area of practice and how it relates to your geographic region where you will be employed.

Do you have a rare specialty that's hard to replace or does your practice or hospital have important referral sources it needs to protect?

All of this could factor into what is deemed a reasonable non-compete.

I know someone out there is thinking, Whatever, I'll just break the non-compete.

According to Heather, if you try to do that in a state that enforces them, a hospital can sue you and prevent you from practicing.

Your best bet, if you need to break a contract, is to contact a lawyer who can tell you your chances for success right up front. You'll know your odds right from the start.

I'm not even going to ask if you have non-competes in your contracts because odds are the majority of you do.

I'm curious about your experience. Anyone out there have to break a non-compete, negotiate around one, or have trouble finding a job after leaving an old one?

Anyone run into a non-poach agreement?

It's a tricky world out there. I'm curious what you all think. Should we just remove all these restrictions? Comment below!

Alok S. Patel, MD, is a pediatric hospitalist, television producer, media contributor, and digital health enthusiast. He splits his time between New York City and San Francisco, as he is on faculty at Columbia University/Morgan Stanley Children's Hospital and UCSF Benioff Children's Hospital. He hosts The Hospitalist Retort video blog on Medscape.

Follow Alok Patel on Twitter.

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