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January 2024Like many physicians, Greg Davis, MD, MPH, signed a noncompete clause when he accepted his first job as an otolaryngologist.
Dr. Davis joined the faculty at the medical college he’d attended, conducting research, educating medical students, and treating patients with nasal and sinus conditions. The noncompete clause, which restricted his ability to practice medicine within 30 miles of his employer for two years, was a non-issue for more than a decade—that is, until Dr. Davis decided to leave academic medicine.
He knew that other physicians had challenged their noncompete clauses in court and lost, even after spending significant sums. So, Dr. Davis hired a lawyer, who proposed a monetary buyout to his employer. Their answer was “the best backhanded compliment I’ve ever had,” Dr. Davis said. “They said I was too valuable to the institution to offer any monetary buyout.”
Dr. Davis is just one of millions of physicians whose careers—and lives—are limited by noncompete clauses, a type of contract covenant that may also be called a “restrictive covenant” or “non-interference” clause. According to the American Medical Association (AMA), “unfair noncompete clauses are extensive in healthcare, affecting between 37% and 45% of physicians.”
The AMA isn’t the only organization that considers noncompete clauses problematic. In January 2023, the U.S. Federal Trade Commission (FTC) issued a plan to ban noncompete clauses, which they describe as “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The press release announcing the proposed new rule specifically mentions “doctors” alongside hairstylists, warehouse employees, and business executives as workers affected by noncompete clauses.
In May 2023, the National Labor Relations Board (NLRB) released a memo stating that “overbroad noncompete agreements are unlawful,” while allowing that they “could be lawful if the provisions clearly restrict only individuals’ managerial or ownership in a competing business….” The NLRB memo doesn’t have the force of law, but according to an article written by Morgan Lewis, a law firm that specializes in corporate contracts and has more than 30 offices worldwide, it serves notice that noncompete provisions may violate the National Labor Relations Act unless narrowly tailored to special circumstances.
What impact will these actions have on otolaryngologists? It’s too soon to say. The FTC is currently accepting public comments on its proposed ban and won’t issue a final decision until April 2024 at the earliest. Even then, it’s expected that noncompete clauses will occupy murky legal ground for years to come.
“My best advice for all physicians is, don’t hold your breath on the FTC to save you,” said Peter J. Glennon, Esq., chief executive officer of The Glennon Law Firm and author of Am I Stuck in This Practice: A Guide on Non-Compete Agreements for Doctors, Nurses, Dentists, And Other Health Care Providers. “Negotiate away or limit your noncompete now if you can.”
History of Noncompete Clauses in American Medicine
Noncompete agreements have been part of the U.S. business landscape for more than 100 years, Glennon said. Historically, they’ve been used to protect business owners’ investments.
“You don’t want to have an employee take your intellectual property or client lists and then walk across the street, set up a business, and compete against you,” said Kyle Claussen, an attorney and chief executive officer of Resolve, a company dedicated to physician contract review and negotiation.
I think that any ban by the FTC would probably have the greatest impact in the healthcare industry. You could set up a dual world in which you can have noncompetes in nonprofit systems but not in for-profit clinics and hospitals.
—Peter J. Glennon, Esq
