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Anatomy of a Noncompetition Clause: Now’s the time to review your employment contract

by Steven M. Harris, Esq. •

Typical red flags include:

  • Prohibition to practice anywhere in a specific state;
  • Prohibition to practice within a territory comprising excessive miles from the current practice; and
  • Prohibition to practice within certain counties.

Durational Scope

A noncompetition clause should also identify the time period in which the physician must refrain from practicing within the restricted geographic area. Whether or not the durational scope is reasonable will vary from state to state. Generally, as long as the restricted time frame is two years or less after termination of the contract, the time restriction will be considered reasonable. States vary on whether time restraints exceeding two years are reasonable, and, unfortunately, there is no bright line test as to what constitutes as a reasonable time restraint.

The pitfall I encounter most often when it comes to time restrictions is excessiveness based on the state’s laws and the circumstances of the physician and the employer. In negotiating the restricted length of time in a noncompetition clause, it is more common to have a longer time restriction for a physician selling a medical practice than it is for a physician entering into an employment relationship.

Prospective Employer

In addition to the restrictions placed upon the physician in transition, great care must be taken by the practice seeking to hire a new physician. States recognize the legal theory of interference with a contract. Accordingly, if you are recruiting a physician who is subject to an employment agreement with his or her current practice, you must be very careful while recruiting. If a prospective employer is aware of an existing employment contract that contains practice restrictions on a recruited physician, the practice could very well be held responsible for damages if a dispute arises among the parties.

Words, Words, Words

The addition or omission of a single word in a contract can make a world of difference. I reviewed the noncompetition clause in a physician client’s former employment agreement that precluded him from “being employed by a medical practice engaging in otolaryngology within a five-mile radius of XYZ group for two years.”

Because this provision did not preclude my client from being retained by another practice as an independent contractor, being employed by a hospital or opening up his own practice, I was able to structure several post-employment options for him that were not in violation of his employment agreement.

While it may seem like just semantics, a few words can change your future. Before you put pen to paper, be sure to have any contract containing a noncompetition clause reviewed by a lawyer who is well versed in your state’s laws. If you have already signed an agreement with a noncompetition clause and you are considering your next career move, a lawyer may be able to shed some light on a seemingly impenetrable clause.