Guidelines to Creating a Properly Written Non-Compete

June 15, 2016

What do physician practices have to know about creating a non-compete clause for one of its physicians? Here are four guidelines.

Non-compete provisions related to physicians are generally enforceable in most states, as long as they are reasonable in terms of geography, scope, and time.  What determines reasonableness often depends on case law in a particular state and even the particular judge hearing the case.

Whether drafting or reviewing a non-compete provision, it's important to always remember that the non-compete is intended to protect a practice's "protectable interest."   Too often non-competes are used merely to scare physicians, who lack the knowledge and funds to take on an employer, regardless of how poorly written or unreasonable a non-compete may be.

A properly written non-compete will generally following these guidelines:

1. Use a geographic radius which is tied to the area from which the practice's patients are drawn.  If patients come to a practice from within 2 miles only, there is no reason a 10 mile radius must be used.  Unless the practice is in a rural area or the physician has a rare specialty, a smaller non-compete is appropriate.

2. Do not prevent a physician from "treating" a patient post-termination.  This is a common error in non-compete drafting.  While physicians can be prevented from soliciting patients, and forced to relocate their practice a certain distance away, patients have a right to choose their physician. 

3. Tie the non-compete to locations where a physician actually works.  If a practice has five locations and the physician has always worked at one location, he is unlikely to have met the patients and referrals sources from the other locations.  The non-compete should reasonably limit competition to a radius around the location(s) at which the physician regularly worked. Moreover, if the physician finds a new job that will have him practicing medicine outside the non-compete area, he should not be prohibited by the non-compete from taking this position simply because the new employer also has locations within the non-compete area.   

4. The non-compete provision should not prevent a physician from "practicing medicine" within a geographic area and should limit the non-compete restriction to offering the same (or competitive) services as the practice within the non-compete area.    

This last point is, in fact, the subject of a recent court action in New York, where a court reviewed the case of anesthesiologist, Rajmani Krishnan against his former medical practice, Anesthesiology Associates, P.C. (the "practice").  In the case filed in October, 2015, Dr. Krishnan left the practice and was subject to a 20 mile non-compete that prevented him from rendering "physician services" of any type during the non-compete period.  The practice was solely engaged in anesthesia services at a local hospital and Krishnan desired to be able to practice pain medicine.  In a decision rendered June 6, 2016, that sets precedent in the healthcare arena in New York, the Commercial Division of the Suffolk County Supreme Court denied the practice's motion for a permanent injunction. Rather, the Court decided that Krishnan could not practice anesthesiology within the restricted area while the case proceeds to trial, but could continue his pain management practice during this time.  At the trial, the court will be considering the enforceability of the restrictive covenant. 

This case is a good example the importance of carefully considering the non-compete restrictions imposed on physicians. Drafting a non-compete to prevent only competitive services from being rendered in the covenant area post-termination reduces the likelihood of dispute between the parties, as well as  needless expense on legal and related fees.  By the time this case is heard, there will be clear evidence of whether the practice was even affected by Krishnan engaging in pain medicine within the 20-mile radius. Most likely, there will have been no impact at all. 

Even if your practice has a non-compete which it believes is enforceable, it's always advisable to consider the particular facts at hand before deciding to pursue enforcement.  Talk to counsel about whether a departing physician really poses a threat to the practice and if the benefits of enforcement outweigh the costs.  Too often practices enforce non-competes because they are angry about a physician's departure - even if he or she poses no real threat at all.

Drafting a proper non-compete requires thoughtfulness.  Consider what your practice is really trying to protect when drafting any prohibition on competition.