A balance is required with non-compete agreements in surgical practice

1913
Bhagwan Satiani and O. William Brown

Unless prohibited by state law, most physicians employed by hospitals or physician groups are required to sign non-compete agreements (NCAs). A recent survey of 2,000 primary care providers (PCPs) in five states, 50% of office-based and 37% of hospital-based or free-standing centers, had signed an NCA.1,2 Our experience is that almost all surgical specialists are required to sign one.

NCAs are generally subject to state regulation, not federal. The Federal Trade Commission (FTC) convened a workshop in 2020 on whether it could justify NCA actions through rule making rather than legislation. Both the American Medical Association (AMA) and American Bar Association (ABA) were against the proposal. Some of the opposition is based upon federalism arguments, which favor these regulations to be left to the states. In most states, like Ohio, NCAs are enforceable provided “the restrictions are no greater than necessary to protect the employer’s legitimate business interests; they do not impose an undue hardship on the employee; and the restrictions would not injure the public.”3

Other factors include that the NCA must be part of an employment contract in writing, narrowly tailored and have reasonable limits of distance and duration. In Columbus, two major health systems restrict their physicians from practicing within 20–25 miles for one to two years. Most courts will enforce a “reasonable” NCA and rule on factual, case-by-case situation. (BDO Seidman vs. Hirschberg, 93 N.Y.2d 382 1999). Many states—such as Colorado (limited ban), Delaware, Massachusetts, Louisiana, North Dakota—ban NCAs. Others, such as Connecticut, limit the geographical distance to 13 miles from the primary site of practice and the duration to one year.

It is believed that NCAs limit worker movement, entrepreneurship, and information-sharing such as academic or scientific discoveries. However, a complete ban on NCAs will hurt the ability of companies to protect trade secrets, especially for small- and medium-sized businesses.

There is evidence that about 50% of private sector businesses require some employees to sign an NCA. Some wonder if healthcare executives also sign NCAs. That depends on many factors, but, in general, senior executives, especially in private corporations, may be required to sign one. Similarly, most private practices also require NCAs. It is common in technical and executive positions, and it is estimated that 36–60 million Americans have signed an NCA. Among these workers, about 45% of primary care physicians are estimated to have signed an NCA.2

Even if the NCA is heavy handed and unduly restrictive, health systems know that physicians may not have the resources and time to contest them in court. Another contractual option maybe to have themselves or their new employer negotiate the payout (if there is one) with the previous employer.

The Hamilton Project suggests several proposals to balance the interests of firms and workers: require that employees be informed in advance that a NCA will be required to be signed; compensate existing employees who are asked to sign a new or revised NCA without retaliation; stop the state from allowing judges to modify existing NCAs; give state attorneys general power to end unenforceable NCAs; and, finally, institute regulations to allow easier enforcements of NCAs.4

If located in a large metropolitan area with multiple hospitals, it may be necessary to undertake some planning before signing an NCA in case a move becomes necessary. However, could this common practice in many industries may be changing?

President Joseph Biden signed an executive order on July 9, 2021, called “Promoting Competition in the American Economy.”5 The order urges the Federal Trade Commission (FTC) to “curtail unfair use” of NCAs. It is likely that this order is directed at lower income or hourly workers, who probably do not hold any trade secrets.

For instance, the District of Columbia passed a law banning an NCA for low-wage workers. However, the ban excluded physicians with incomes greater than $250,000, provided the physician was shown the non-compete clause at least 14 days before signing an NCA.

In fact, 70% of people in some management positions are asked to sign an NCA after receiving a job offer, and almost half sign on their first day or after they join a company.2 It is too early to say whether this strike against NCAs will have any long-term impact on their widespread use in physician employment agreements. Finally, physicians should remember that termination of an employee, with or without cause, should result in the termination of an NCA.

References

  1. Lavetti K, Simon C, White WD. The impacts of restricting mobility of skilled service workers: Evidence from physicians. http://kurtlavetti.com/UIPNC_vf.pdf
  2. Has your career been affected by a non-compete clause? https://www.medscape.com/viewarticle/943622
  3. Are non-compete agreements enforceable in Ohio? https://ohio-employmentlawyer.com/ohio-noncompete-agreements/
  4. Marx M. Reforming non-competes to support workers. https://www.hamiltonproject.org/papers/reforming_non_competes_to_support_workers
  5. https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/

Bhagwan Satiani, MD, is professor emeritus in the division of vascular diseases and surgery in the College of Medicine at The Ohio State University. O. William Brown, MD, is chief of the section of vascular surgery at William Beaumont Hospital, Bingham Farms, Michigan. He is also a professor of surgery at Oakland University/William Beaumont School of Medicine and an adjunct professor of law at Michigan State University College of Law.

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