Requirements for the Enforceability of a Physician Non-Competition Clause in Texas
With the increasing needs for primary and urgent care options, expansion of private emergency clinics in cities throughout Texas is a rapid are of health care growth. With growth has come consolidation. Many of these clinics and other medical practices are being bought by private equity companies or groups of physicians who seek to employ several physicians to render services to patients. Competition in this market is fierce, and the practice often includes non-competition clauses in employment contracts with physicians. Physicians and health care facilities find themselves facing the question of whether such non-competition agreements among physicians are enforceable in Texas.
Texas has very specific requirements for a valid non-competition clause application to physicians. The specific requirements are found in the Texas Non-Compete Act, section 15.50 of the Texas Business and Commerce Code. The following is a brief summary of those requirements and other considerations to keep in mind whether you are a physician contemplating signing such an agreement or an employer seeking to employ the physician at your practice:
Requirements
- Location. Like other general non-competes, the geographic area that the non-compete prevents the physician from competing in must be reasonable. For instance, a medical practice where most patients reside within a 5-mile radius should not restrict the physician from working in the entire state of Texas. Courts usually look to the geographic restriction to be from the actual location of the practice where the physician was working. Be wary of any terms such as “any office of Employer” or any term that gives way to multiple offices from which you are restricted from working within certain miles of.
- Time. The non-compete must be reasonable in terms of time. Courts seem to consider a time period of a year to two years reasonable from the date the physician leaves the employ of the practice; however, Courts, will consider other circumstances that may warrant a longer period.
- Scope. The scope of the non-compete, or what it specifically prevents a health care practictioner from doing in the future, must be reasonable. It cannot be broader than what is necessary to protect the employer.
- Part of a Larger Agreement. Non-competes must be ancillary to or part of another agreement. Often, the non-compete is included in your prospective employment contract. It cannot be a stand-alone contract.
- Quid Pro Quo. Otherwise, known as consideration, the physician must get something in return, and it cannot just be actual employment in order for the non-compete to be enforceable.
- Buy-out. This is a very specific Texas requirement that applies only to physicians. The non-competition clause must contain what is called a “buy-out provision” that provides the physician with the option of paying a certain reasonable amount to “buy-out” of the non-compete should he or she wish to. Much dispute can arise around what constitutes a reasonable amount for a buy-out. The parties can agree to an amount, or if they can’t agree to an amount the Texas Non-Compete Act provides that the amount can be determined by an arbitrator, but this can be an expense route.
- List of Patients. The physician will not be denied access to a list of his or her patients whom the physician has seen or treated within one year after leaving employment of the practice.
- Medical Records. The non-compete must provide the physician with access to medical records of the physician’s patients upon the patient’s authorization of such.
Other considerations when you leave the practice
- Notify Patients. When a physician terminates employment, retires, or otherwise leaves a medical practice he or she must ensure that patients receive notification and are given an opportunity to obtain copies of their records or arrange transfer of their records to another physician. 22 TEX. ADMIN CODE § 165.5((a)1). Note that the physician can send this notice via mail to each of the patients seen within the last two years of his or her employment at the practice. 22 TEX. ADMIN CODE § 165.5(b)(2)(A-C).
- Notify Board. The physician also must notify the Board of Medical Examiners when they are terminating practice, retiring, or relocating and must specify in this notification who has custodianship (or possesses) of patient medical records and how such records can be obtained. 22 TEX. ADMIN. CODE § 165.5(a)2).
Negotiation
Physician employment contracts, including the non-competition clause, are always up for negotiation. It is worth the time and expense to have a knowledgeable attorney review your agreement prior to signing it. Doing so could prevent you from any hardship associated with a tricky of non-compete in the future!
Nina Lariscy is an attorney at Towns Law Firm, P.C. in Dallas, Texas. Her practice includes employment and commercial litigation.