Non-Compete Clauses And Restrictive Covenants For Health Practices

President Bidens’ Executive Order on Promoting Competition in the American Economy

Earlier this year, on July 9, 2021, President Joe Biden issued an executive order to address the use by employers of non-compete agreements. The new executive order aims to improve competition across the country. President Biden’s executive order complements an order entered by President Barack Obama which called for states to act to limit non-compete clauses in employment contracts. Biden’s EO aims to involve a federal agency, the Federal Trade Commission (FTC) to use its authority to enact rules (pursuant to the statutes that created and monitor the FTC) restricting non-compete agreements.

A few of the key provisions of President Biden’s EO are:

“The American promise of a broad and sustained prosperity depends on an open and competitive economy.  For workers, a competitive marketplace creates more high-quality jobs and the economic freedom to switch jobs or negotiate a higher wage.  For small businesses and farmers, it creates more choices among suppliers and major buyers, leading to more take-home income, which they can reinvest in their enterprises.  For entrepreneurs, it provides space to experiment, innovate, and pursue the new ideas that have for centuries powered the American economy and improved our quality of life.  And for consumers, it means more choices, better service, and lower prices.”

The Order cites broad anti-competition legislation already enacted such as:

• The Sherman Act
• The Clayton Act
• The Federal Trade Commission Act

The EO establishes a White House Competition Council to help foster fair competition. The Council includes the Secretaries of various cabinet-level positions (such as Commerce and Labor) and the heads and chairs of many federal agencies.

The history of non-compete agreements

Employers in California and across the country have long added restrictive covenants to their written employment agreements. These covenants generally restrict the employees in the following ways after the employee leaves the company he/she works for (either through voluntary leave or forced termination):

• Limiting the ability of an employee to complete. Employment contracts sought to limit the ability of a former employee to open a new business that would compete with the employer or to work for a competitor. The limitations generally required that the employee agree not to compete for a certain length of time, such as one year or more years, and not to compete within a specific geographical radius (such as within 50 miles or within the same state).
• Limiting the ability and right of the former employee to solicit business from existing customers and clients of the employer.
• Limiting the ability of the employer to disclose company trade secrets, intellectual property, customer/client lists, or other information the employer deems valuable.

These limits aim to protect the employer’s investments in the company including their training methods, work methods, confidential information, and other business and work investments.

Employers in all professions, including the medical profession, have sought to use non-compete agreements and restrictive covenants. The position of hospitals and medical practices is – why should we help train a doctor, give the doctor access to our clients, help the client improve his skills – only to have the doctor leave (or be fired) to open up a competing business?

Employees and employee advocates assert that these limits prevent workers from earning a living so they can feed themselves and their families. They also assert that competition helps foster new ideas and new solutions.

One of the other factors that affects non-compete agreements is what workers are affected. For starters, non-compete clauses generally do not apply to independent contractors. What distinguishes an employee from an independent contractor is usually open to argument/interpretation. Generally, an employer can control the work performance (hours of work, tools that are used, work methods, and other work factors) of employees while employers cannot control the work performance of independent contractors.

Many employees do have written contracts with their employers. These employees often include management employees, employees who are skilled at bringing in business, employees with special skills such as technical skills, and other unique employees.

Non-compete agreement clauses generally require that the employee enter into a written employment agreement with the employer. Many employees do not have written contracts with their employers.

These employees are at-will employers who can be fired by the employer for almost any reason provided the employer does not discriminate, violate any employment laws, or fire the work in a manner that is against public policy.

In the medical profession, hospitals and medical practices generally do have written contracts with the physicians these medical companies hire. Medical employers may or may not have written employment contracts with nurses, medical technicians, and other medical employees.

Historically, states have created legislation regulating non-compete and restrictive covenant agreements. These laws vary from state to state. California (discussed in more detail below) has effectively made non-compete agreements for all professions including the medical profession illegal.

Some professions such as construction are more likely to have written employment contracts with non-compete clauses than other professions.

Can the Biden Executive Order have any effect?

What role the federal government can assert even with an Executive Order is unclear. For now, a large part of the answer depends on what the FTC does and whether Congress supports the FTC.

Courts and judges generally review non-compete agreements very closely. While courts recognize the importance of employers to protect their business, courts also recognize the need of workers to earn a living. Restrictions can mean an employer cannot put food on his/her table and pay the home, business, and other bills.

Generally, non-compete agreements are reviewed very strictly if the employee is an hourly worker – especially if the hourly wage is near minimum wage. Hourly workers are not in a position to bargain with their employer. Hourly workers are not in a position to survive if they cannot work for a year or more.

Non-compete agreements (again before California’s new law and in other states) are more likely to be enforced if the employee can move to a location that does not compete with the current employer – or if the employee is likely to have enough savings to wait out the non-compete period.

California Non-Compete and Restrictive Covenant Laws

California was the first state to enact legislation that voids employment contracts that restrict the ability of anyone to earn a living in a business, trade, or profession – such as the medical profession. The California Business and Professions Code, 16600 states –

“Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

This law means that any California employer (including a medical employer) who asserts a non-compete agreement or any other agreement that prevents someone from working in their field – should lose their case in court. In short, hospitals and medical providers can no longer seek to enforce non-compete or other restraint of trade clauses in their employment contracts. These employers also cannot refuse to hire a doctor or healthcare worker who refused to sign an employment contract with a non-compete provision.

The California law generally also applies to non-solicitation agreements meaning that medical providers cannot, according to this law, file a court action against a doctor or health provider who attempts to solicit business from former patients.

However, doctors and health providers must still comply with other laws and regulations that govern the practice of Medicine in California – including the rules governing the solicitation of former patients.

There are a few times when employers in California can enforce non-compete provisions.

• Employers can normally terminate an employee who divulges any confidential information to another business – during the term of their employment.
• Anyone who has an ownership interest in a partnership or other business may be asked to sign a non-compete agreement in order to acquire their ownership interest. The business can generally enforce this type of contract.

Employees, including physicians, should be aware that employers may try a few strategies to get around the non-compete clauses. These strategies are generally unenforceable:

• A company, including a medical practice, cannot require that all contract clauses will be analyzed based on the law of a state other than California – such as where the company has its headquarters – provided the employee works in California.
• Requiring that the worker give several months’ notice instead of the typical two weeks’ notice.
• There may be valid exceptions to the non-compete prohibition that your California healthcare lawyer can explain. For example, there may be a fine line between whether certain customer lists are trade secrets.

Non-compete and restrictive covenants – how do these clauses apply to the medical profession in California?

We’ve written certain articles about the rights and duties of physicians who leave a California medical practice:

• Physicians should review their Employment Agreement or risk Violating Federal and State Law
• The Difference Between Non-Solicitation and Abandonment Of Patients
• Legal Issues When Leaving a Medical Practice: Navigating Non-Solicitation vs. Abandonment

As a rule, doctors and health providers should review their employment contracts with an experienced California healthcare lawyer – Before the professionals sign the contract, not afterward. A skilled attorney can explain your rights, what items you can negotiate, and what should happen when you leave the practice.

The lawyer will normally review:

• Any non-compete covenants
• Any non-solicitation covenants
• The physician’s ethical duties to his/her patients

If you/the doctor has not reviewed your contract before your started your new practice, you should review the contract and your rights – before you are thinking about leaving the practice or when the physician is terminated. Doctors also need to review their rights before doctors agree to a severance agreement.

Doctors, chiropractors, and other healthcare workers who work for medical centers, hospitals, wellness centers, integrated medical centers, and other health employers all need to understand their employment rights and duties.

Doctors need to be concerned about legal action by patients and medical boards in addition to their employers.

What issues will a skilled healthcare compliance lawyer review with a healthcare worker – regarding their employment contract.

Seasoned healthcare lawyers review:

• Non-solicitation agreements. Employers will usually try to restrict your ability to solicit former patients and the vendors who work with the medical practice. Your lawyer can help define what acts constitute solicitation and what acts do not. For example, if you had a relationship with a patient before your job with the employer, you should argue that you can solicit that patient.
• Non-compete agreements. Your lawyer can help distinguish non-compete provisions with non-solicitation agreements.
• Abandonment of patients. A doctor’s primary duty of medical care is to the patients. Leaving a practice can affect the quality of care a patient receives. Gaps in identifying which doctor can treat a patient may result in missed appointments, missed tests, and missed diagnoses – which can result in death or injury. Patients need access to their medical records. The California Medical Board has provisions for ending a doctor/patient relationship that must be met.
• When doctors have the right to terminate their employment with their medical employer
• How and when a doctor who leaves a practice (or is terminated) should inform their patients of their new employment status. There is often a balance between protecting the patient and complying with the employment contract.

In addition, HIPAA rules also need to be reviewed and met.

President Biden has recognized what California has already recognized – that the balances in employment contracts have shifted. Employees need more protection from non-compete clauses and other restrictive covenants so workers can compete in today’s fast-moving world.  Experienced California lawyers work with doctors and other healthcare providers before the providers sign their contracts and when the providers leave a company. Doctors need to understand their employment rights after leaving their employer – and their duties to provide competent medical care to their patients.

Physicians and healthcare providers should contact Cohen Healthcare Law Group, PC to discuss their employment contracts including non-compete clauses and non-solicitation clauses. Our experienced healthcare attorneys explain employee healthcare rights and negotiate healthcare employment contracts.