January 15, 2021 | Written By Jay Klimes
Imagine this scenario: You are less than one year from finishing your residency program and are actively interviewing for attending physician positions in your dream city. Everything you have worked for in the last two decades of schooling is coming together. After an interview at a relatively new medical practice group that does not have a proven track record of keeping physicians, you are given an employment contract to review. Your options are limited, so you sign the employment contract, and your life moves forward with patient care. A few years later, you come to the realization that this medical group is no longer a great fit, so you start looking at your options. A more renowned medical group in the same city is looking to expand, and you would be a perfect fit. You interview with the more renowned medical group, get an offer, and sign an employment contract. You give your current employer notice of your departure and now HR is telling you to get a lawyer because you are violating the non-compete clause in your initial employment contract. What do you do?
A common problem facing physicians occurs when they want to leave one medical practice for another while remaining in the same geographic area. The thorn in this issue is frequently the restrictive non-compete clause contained in their employment contract. In this article, we will review the standard, and not so standard ways that medical practices limit a healthcare providers’ freedom to practice patient care.
WHAT IS A NON-COMPETE?
A standard non-compete clause in an employment contract usually has two restrictions attached to it: time and geography. These two components are rather straightforward on paper. The healthcare group will mandate that if you are to leave the practice and you decide to remain in the area, that you are not allowed to practice medicine again for a specified time period, typically two years. If you do decide to practice in a different area, the geography component of the clause will dictate how far away you must move your practice from that medical group’s serviceable region. With these restrictions, different scenarios start to run through a medical professional’s head, such as do I have enough money saved to stave off two years of bills without my regular income? Should I move to a different area? Should I try to fight this clause in the courts and get it invalidated? While these questions are all valid, the underlying issue is this: How can I be ordered to follow this restrictive covenant?
THE INTERNAL CONFLICT OF A NON-COMPETE
Patients have a right to choose their healthcare providers, and polls show that patients are more loyal to their healthcare provider than the medical service group that employs the healthcare provider. Both the healthcare provider and medical group want to protect their competing interests. On one side, the healthcare provider wants to continue with patient care and advancing their career while earning an income, and on the other side, the medical group wants to make sure the patients (and revenue source) do not jump ship if the medical practitioner leaves and relocates nearby. If a physician does not want to comply with the components of the non-compete clause, these two parties may try to reach a compromise outlined in the employment contract. One approach is a buyout clause where they departing physician pays liquidated damages to the medical practice for violating the non-compete clause.
HOW MUCH DO I OWE?
Liquidated damages attempt to calculate the amount of money one party (medical group) lost due to the other party (departing physician) breaching the employment contract by continuing to practice medicine within the serviceable region or time period. In the employment contract, the liquidated damages amount can be calculated in an agreed-to formula, or the amount can be reached during arbitration. A common gripe with a liquidated damages formula is whether the monetary amount is reasonable. It isn’t unheard of for the liquidated damages amount to reach in the hundreds of thousands of dollars, so due to the potential of high payouts, the reasonableness of the payout leads to litigation.
As seen in litigated cases across the United States, the actual amount of lost income that the medical group suffers is frequently less than the amount of money proscribed in the buyout clause formula. Let me repeat that again, but differently: the actual amount of lost money is frequently less than what the formula says you should owe! See Crocker vs. Colorado Greater Anesthesia, 463 P.3d 860 (2018), where the anesthesia group asserted the departing physician owed $207,755 per a buyout formula. The court determined this amount was conjecture and not reasonably related to actual monetary damages suffered by the medical practice. Ultimately, the appellate court determined the non-compete clause was unenforceable. It should be noted that not all employers or employment contracts contain a buyout clause; this largely depends on the state in which you practice.
WHAT SHOULD I DO?
Cases like Crocker have medical practices re-evaluating their employee contracts and shareholder agreements to see if they can withstand legal scrutiny. Therefore, it is imperative to understand what you are signing up for in an employment contract with a non-compete clause. Consulting with an attorney is a safe step to ensure you know the ins and outs of your employment contract. For an in-depth analysis of your current or prospective contract, contact me at Jay.Klimes@Parlatorelawgroup.com.
Jay Klimes is Counsel at Parlatore Law Group and focuses his practice on entrepreneurship, small business development and intellectual property in the medical field. He assists physician and healthcare professionals looking to start medical practices with patent and trademark licensure, in addition to negotiating contract review, and creating and implementing strategies for steady growth.
**This article is written for a physician’s perspective, but also applies to dentists, physician assistants, nurse practitioners, and other medical professionals. **
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