Non-compete agreements are a double-edged sword.
For employers bringing on new employees, they invest in their new hires. They want their new hire to succeed. They do not want that person to build a practice, then leave, go across the street, and compete.
For employees, the non-compete agreement is very limiting. If the job does not work out, they have to leave. Often, they have to sell their house, yank the kids out of school, find a new dry cleaner. Moving is stressful. Doesn’t matter if you move 20 miles away or across the country.
Non-compete agreements are addressed by state law. Some states, like California, make physician non-compete agreements unenforceable. Other states, like Texas, incorporate a formula allowing a physician to “buy his way” out of the agreement. Other states, like Missouri, fully enforce such agreements.
In states where the agreement is enforceable, the terms must be reasonably necessary to protect the employer’s business interests. It cannot be more restrictive than necessary to protect the employer’s business interests. So, the geographic limitation cannot be too wide. The time restriction cannot be too long. Finally, if you are the only person providing services in the region, for example, pediatric oncology, special circumstances will likely apply. You cannot deprive an entire region of valuable follow-up care.
Over the past several months, the Federal Trade Commission has been considering a nationwide federal mandate. In January 2023, they issued a proposed rule that would ban all non-compete agreements. The proposed rule was published with the expectation that comments would be submitted.
26,000 comments were received. That’s a lot.
Under the proposed rule, not only will employers be prevented from entering into non-compete agreements with their workers, but they will also have to tell their former workers that their noncompetes are null and void.
Anyway, the Federal Trade Commission will address this again at a special meeting on April 23rd. Importantly, there has been a lot of blowback. From the US Chamber of Commerce, the anti-trust section of the American Bar Association, and even the American Medical Association.
FTC will first vote whether to authorize the public disclosure of the proposed final rule. If the vote clears, they will present the final rule to the public, and then will vote on whether to approve the final rule.
Even if the FTC approves the mandate, it will likely would take time to go into effect. And expect litigation to ensue in jurisdictions favorable to non-competes.
It’s too soon for employers or employees to break out the champagne and declare victory.
What do you think?
The legal hallmark for non compete agreements has been that they have to be reasonable in terms of time and distance.
One to two years is typically the maximum time that would be permitted in a legal proceeding.
In terms of distance this depends upon the locality. In Manhattan 1 mile may be a reasonable distance. In upstate NY 25 miles might be a reasonable distance.
But the employer also needs some protection. Assuming that an employer has brought a new physician in, and expended resources to bring them in, introduced them to their patient base, etc. they do not deserve to have their patients poached and lose revenue as a result.
Why the federal government needs to step into this is absurd.
They cannot have the right answer for all circumstances in all 50 states.
This is not “interstate commerce”, but intra state commerce, and they have no jurisdiction.
They have no constitutional mandate to step in.
They will get things wrong. They will look at this from only one side, not both sides.
This needs to be hammered out at the local level as it has always been.
The whole point of capitalism is that employers have freedom to hire who they want, and workers are free to choose where to exercise their labor. Yet employers think freedom is for me, not for thee.
Fun fact: the reason California became the center of the tech industry is that they banned non-compete clauses. So when Packard pissed off all his brilliant engineers, they were free to start up other companies without leaving the Bay Area.
If you don’t want your workers going across the street, make it worth their while to stay.
Non-compete clauses are an absolute unjustifiable travesty and should be banned, for all industries, nationwide, without exception.
Having been to the state supreme court to annul a noncompete, I can say he following:
1. The Arizona Supreme Court did do an excellent job of defining what can and cannot be protected by covenant, although they did not specify specific time frames.
2. Patients have free will are beholden to the physician, not the practice, thus the practice does not gain much in barring the physician from practicing.
3. The cost of litigating a noncompete on either side of the issue will be far more than any monies gained by a medical practice. Never expect significant legal fees to be awarded.
A reasonable buy-out, however, can be appropriate to offset the established practices expenses, esp if additional expenses (ie, higher rent for a larger space) are incurred.
Yes, there are two side to this issue. An established practice sets up a new physician and patients get scheduled with said physician. Until that physician develops their own patient following, they benefit from the support and infrastructure of the existing practice. Whether it is due to different practice styles or egos if said physician chooses to separate, they should be free to do so. Often times a practice may have to offer several carrots to attract a new physician and is expecting a long-term relationship to offset this investment (not all investments are beneficial). One cannot force patients to stay with a practice if they desire to have a trusted physician continue in their care. A physician can set up shop on their own and be in relative control of their destiny. Choosing to start with an established group has many benefits both monetary and intangible. Sometimes it is not a good fit for the physician, or the practice and separation is the best answer. While a non-compete contract may be burdensome it is one way to ensure the start-up investment is compensated. While a contract that does not specify a non-compete may not be fair, one that focuses on the financial investment/ cost of leaving could eliminate the stigma of non-compete but still compensate for the start up. Outlining a fee to leave can set up a dialogue for scenarios where it is the best option to leave and pay off a practice that helped to get one established. This option would have to be mutually agreed upon and reasonable of course.