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New state legislations may have unintended effects on non-compete agreements.
A non-compete agreement is a type of “restraint of trade,” which prevents a physician employee from leaving his employment and opening a competing clinic or joining an existing competing clinic. These agreements may also prevent soliciting the former employer’s patients or referral sources.
Historically, physician non-compete agreements were considered unlawful, against public policy, and unenforceable. California Business and Professions Code § 16600 has been held to prevent enforcement of many such contracts altogether. Other states, such as Texas (Tex. Bus. & Com. Code 15.50), have passed statutes that permit reasonable non-compete contracts as long as they are limited in time, scope, and geography and have a buyout clause. For example, a non-compete agreement may be legal if it is restricted to 18 months in a 25-mile radius, limited to the type of work previously performed, and allows the physician to buy out of it for a set price. That much is settled.
However, several state legislatures have begun passing Citizen Participation Acts or anti-SLAPP statutes. How these anti-SLAPP statues work is explained by Olivia Zimmerman Miller, JD, an associate of Weil, Gotshal & Manges LLP in Dallas, Texas. in her September 2017 online report:
“[The Texas Citizens Participation Act (TCPA)] is Texas's version of an anti-SLAPP statute. "SLAPP" stands for "Strategic Lawsuit Against Public Participation" and is a lawsuit designed to chill protected speech by intimidating and censoring critics, often those who have spoken out against a government entity or on an issue of public interest, by requiring them to spend money to defend against a meritless suit. Anti-SLAPP legislation, enacted by over half of the states, protects persons who exercise their expression rights from such retaliatory lawsuits.”
One of the rights protected by anti-SLAPP statutes is the right of “Freedom of Association,” which protects an individual's right to join or leave groups voluntarily, the right of the group to take collective action in the interests of its members, and the right of an association to define its membership. These statutes were never meant to affect non-compete agreements, but literally written, these anti-SLAPP statues may do just that.
In Elite Auto Body v. Autocraft, No. 03-15-00064 (Tex.App. Austin 5/5/2017), the Austin court held that the anti-SLAPP statute is strong enough to prevent enforcement of certain aspects of non-compete statutes. This is true, even though the Texas legislature did not have this outcome in mind when it passed the TCPA.
The take-away is simply this: whether you are the employer seeking to enforce a non-compete or an employee threatened with the application of a non-compete, there may be additional statutory defenses under the anti-SLAPP statutes in over half the states.
Therefore, it is important to retain counsel knowledgeable in this newly developing line of case law.
Martin Merritt, JD, is the executive director of the Texas Health Lawyers Association and a health lawyer at Friedman & Feiger, LLP.