Negotiation tips for Non-Compete Clauses

Many physician employment contracts contain non-compete clauses, also known as “restrictive covenants.” From a physician’s perspective, the legal language of restrictive covenants and may be difficult to understand and are somewhat intimidating.  These clauses are fraught with significant long-term implications for our careers. While it is critical to consult with an attorney in reviewing your entire contract, having a rudimentary understanding of the key elements of standard non-compete clauses beforehand may help guide your negotiating strategy.

First, do not assume that your non-compete clause will be unenforceable if challenged. While courts’ enforceability determinations vary on a state-by-state (and case-by-case) basis, there are nationwide examples of restrictive covenants being upheld. Furthermore, the time and expense required to fight a non-compete—even if ultimately successful—is typically financially and emotionally draining. As such, it is clearly worthwhile to negotiate your non-compete into acceptable form before signing your contract.

Important elements to consider

Important elements of typical restrictive covenants include duration, geographic scope, and type of practice. While these elements, at baseline, must be reasonable when considered in light of each other, each can be negotiated and adjusted to your benefit. The duration prong establishes the length of time you cannot practice within the defined geographic radius after leaving your employer; reasonable lengths typically range from one to two years, though lengthier terms are not anomalous. Reducing the duration of your non-compete will permit you to get into a new practice within a reasonable time frame.

Geographic scope refers to how far away your new practice must be from your employer. It is critical that you define the areas included in the geographic scope. For example, if your employer contains numerous affiliated clinics/hospital sites, define your primary practice site as the sole nexus for any radius restriction. It is also important to define the type of practice covered by the non-compete. If, for example, you are a pediatric dermatologist but are only practicing general dermatology for your current employer, you may be able to leave your group to practice exclusively pediatric dermatology elsewhere.

Provisions of non-competes

There are several other provisions of typical non-competes worth considering. A “buy-out” clause specifies the pre-determined amount you (or a willing future employer) must pay to relieve you from the proscriptions of the non-compete covenant. Negotiate as low a monetary value to your “buy-out” as possible. Additionally, consider requesting that your non-compete expire at the end of your initial contract term.  This will enhance your bargaining power (both with your current employer or potential employers willing to pay the buy-out) when you reevaluate your options in a few years.

Finally, be aware of what triggers the restrictive covenant. Some contracts apply the non-compete regardless of who terminated the employment relationship and why it ended. In other words, your employer might be able to terminate you “without cause” and leave you without the ability to take another job within the terms of the covenant. You might therefore request that the non-compete apply only if you quit “without cause” or your employer fires you with “cause.” Accordingly, it is crucial to define the term “cause” up front to avoid potential later disputes.

The above is simply a rough introductory guide to understanding non-compete provisions.   It is not intended as legal advice.  It is essential that you engage an attorney experienced in health care employment matters to review your entire contract.  You also will benefit from any knowledge you can acquire before entering into the process of negotiating your contract.  If not, you could spend costly hours with an attorney learning the basic principles).

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