Non-compete / restrictive covenant listing specific competitors

[Bonez]

I have a job offer from a practice that I like and would ideally want to join. The initial example contract they gave me is what I would expect to see based on their business model, but when I got a real contract from them it contained a restrictive covenant which was never discussed in meetings I had with their administrators. This restrictive covenant is "interesting" for a couple reasons and I was hoping to see if anyone on here has any experience in these situations.

1) The practice is a conglomerate of multiple smaller practices in the area that have merged over the course of several decades. According to them, the non-compete agreement is part of my contract due to the region of the state where my prospective job (it is the region where the most recently merged practice comes from). I know someone who was employed by this same practice on the "other side of town" in the not-too-distant past who did not have to sign a non-compete at all. Is this common for a large-area practice to require non-compete clauses in contracts for a specific region of their business only?

2) The practice is large with many (>30) office locations in my state. That being said, their non-compete does not list a specific mile radius around my prospective practice location, municipal/county lines, or zip codes in which I cannot practice if I left. It has a list of specific competitors that spans all major hospital systems in the state (including some that service three of the four neighboring states) and also all of the major private practices in my specialty in this large metro area. It is exhaustive to say the least. After reading a lot about this, it seems a court would likely find that this type restriction is not considered "reasonable," but I'd rather sign a contract in the beginning that has a non-compete clause that is reasonable than take my chances and pay lots of money litigating it in the future. Has anyone else seen a non-compete clause with that kind of reach?

[Zaphod]

Bonez wrote:

I have a job offer from a practice that I like and would ideally want to join. The initial example contract they gave me is what I would expect to see based on their business model, but when I got a real contract from them it contained a restrictive covenant which was never discussed in meetings I had with their administrators. This restrictive covenant is “interesting” for a couple reasons and I was hoping to see if anyone on here has any experience in these situations.

1) The practice is a conglomerate of multiple smaller practices in the area that have merged over the course of several decades. According to them, the non-compete agreement is part of my contract due to the region of the state where my prospective job (it is the region where the most recently merged practice comes from). I know someone who was employed by this same practice on the “other side of town” in the not-too-distant past who did not have to sign a non-compete at all. Is this common for a large-area practice to require non-compete clauses in contracts for a specific region of their business only?

2) The practice is large with many (>30) office locations in my state. That being said, their non-compete does not list a specific mile radius around my prospective practice location, municipal/county lines, or zip codes in which I cannot practice if I left. It has a list of specific competitors that spans all major hospital systems in the state (including some that service three of the four neighboring states) and also all of the major private practices in my specialty in this large metro area. It is exhaustive to say the least. After reading a lot about this, it seems a court would likely find that this type restriction is not considered “reasonable,” but I’d rather sign a contract in the beginning that has a non-compete clause that is reasonable than take my chances and pay lots of money litigating it in the future. Has anyone else seen a non-compete clause with that kind of reach?

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Theyve just recently added an RC because someone told them they could/should. Dont do it. Just ask them to remove it, especially if the majority of people dont have one it puts you at an extreme disadvantage. I'd ask how much they are going to increase the compensation to account for such a lopsided risk. They dont expect anyone to fight back, thats the real issue and so theyve taken as much as they could lately. Just say it was never discussed and you want no part of it, maybe shoot a PM to the two guys here who just did likewise.

[smartmoneymd]

I would agree with Zaphod to kindly ask them to remove the clause if possible. Make sure that these laws are enforceable. For instance, in California this would not fly. However, many practices in NJ have RC's. In a highly dense population this can potentially lock you out of a good part of an entire state.

[pulmdoc]

A restrictive covenant that basically forces you to leave the state in order to abide by the terms of the covenant is a deal-breaker in my mind. A restrictive covenant that names names regarding who you can't work for MIGHT be unenforceable as an unfair restriction but I wouldn't take that risk. A restrictive covenant that is non-uniform among the physicians is unfair even if it is enforceable. Bottom line is this is a very lopsided clause in the employer's favor. If they won't remove the clause or curb it significantly, either they should make things VERY favorable for you to accept it as-is, or you should be prepared to walk away. Employers aren't dumb; they know that people are reluctant to uproot their families and move out of state, so once you've signed this contract, expect "minor updates" to the contract on a regular basis that make your life worse an inch at a time since they know they have all the leverage.

[jfoxcpacfp]

See this chart of non-compete agreement rules by state. If you really want this job, I recommend having an employee law attorney review the contract. A non-compete agreement must be reasonable to be enforceable.

[East coast]

jfoxcpacfp wrote:

See this chart of non-compete agreement rules by state. If you really want this job, I recommend having an employee law attorney review the contract. A non-compete agreement must be reasonable to be enforceable.

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Great chart Johanna - very interesting to note that physicians are singled out as (at least partial) exemptions in seven states.

To the OP, I definitely would have a lawyer give an opinion if the 'no thanks on this clause' option doesn't go through.  It's incredible how often a 'no it's not possible to amend' can change to a 'fine, we'll change that' if the proper pressure is applied, so i'd just encourage you to stand your ground.

 

EDIT - looking more carefully beyond just the term 'physician' on that chart there are quite a few more states beyond my initial count of seven.

[Bonez]

Thank you all for the replies so far, this has been helpful. I'm going to have a couple of my mentors at my fellowship review the contract and give me some advice and I also have an attorney who will look at it as well.

I certainly think I can say "Unfortunately I don't think I can sign a contract with this restrictive covenant, would you be willing to take that out of the contract?" and see what happens. But I'm wondering if it would be beneficial at all to offer an acceptable alternative at the same time? For example - "Unfortunately I would not be able to sign a contract that contains a restrictive covenant of this scope, but I would be amenable to it if the restrictive covenant were to apply only to the county I'd be working in, an X-mile radius around my office locations, etc, etc."

Basically I don't feel like I have a lot of leverage and I don't want them to withdraw the offer if I push too hard, especially I would be completely okay with an RC that is reasonably limited.

[jfoxcpacfp]

Bonez wrote:

I certainly think I can say “Unfortunately I don’t think I can sign a contract with this restrictive covenant, would you be willing to take that out of the contract?” and see what happens. But I’m wondering if it would be beneficial at all to offer an acceptable alternative at the same time? For example – “Unfortunately I would not be able to sign a contract that contains a restrictive covenant of this scope, but I would be amenable to it if the restrictive covenant were to apply only to the county I’d be working in, an X-mile radius around my office locations, etc, etc.” Basically I don’t feel like I have a lot of leverage and I don’t want them to withdraw the offer if I push too hard, especially I would be completely okay with an RC that is reasonably limited.

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That would be my expectation - a reasonable RC. We have them at our office. Not exactly useful now that so much of our business is virtual but they are for a 35-mile radius. My understanding is that I am not allowed to restrict an employee's ability to earn a living. You shouldn't have to uproot your family to put food on the table and it stretches the imagination that you could put a dent in the earnings of such a large employer to find another, similar job in the same state.

[Craigy]

Get your attorney to look at it and give you recommendations.  While helpful, you shouldn't let internet commentary supplant proper legal advice.

Always remember everything is negotiable.

[Raster]

Restrictive covenants are only a problem for people who must stay in a specific area.  They are not a worry for people who want the best job possible and are willing to go where the opportunity is located.  Those people already expect to relocate if a given job doesn't work out - it is unlikely the best opportunity will be in the same place, especially in smaller specialties in which non-competes are applicable.

If you don't want a non-compete, it is likely not the job for you.  There are likely plenty of people who would not object, and they will fill the job with someone else.  You sound like you are attracted to this job for whatever reason, and you can judge if it is an overall better situation to have this job with a non-compete or the best alternative job that does not insist upon one.

It is always a good idea to try to negotiate - covered geography, time duration etc. But if they have put this much thought into it they may not wish to change it.

Do consider that if you are in a field in which a covenant not to compete is typical and they are willing to hire without one - why?  Is the job so bad that they have to waive that?  In fields I am familiar with, only the VA or closed network type jobs would be willing to consider you without a restrictive covenant.  No desirable job in a state that allows it is available without a non-compete.  My partners and I all had non-competes when we were hired and would not consider a hire that did not agree to the same thing.  We would not wish to bring someone on, have them privy to all the details of the practice and go to a competitor.  If we don't find the right person, we don't hire.  We have never had someone leave  (other than through retirement) or fail to become partner.

[ENT Doc]

What is your BATNA (best alternative to the negotiated agreement)?  Improve it.  What is theirs and why are you better?  Your leverage exists somewhere in there and the ability to find a win-win.  If this is a sticking point for them and you'd be willing to leave the state, you should be signaling your disapproval and asking for more elsewhere.  Use other parts of the contract to find the optimal deal in total.

[Zaphod]

Bonez wrote:

Thank you all for the replies so far, this has been helpful. I’m going to have a couple of my mentors at my fellowship review the contract and give me some advice and I also have an attorney who will look at it as well.

I certainly think I can say “Unfortunately I don’t think I can sign a contract with this restrictive covenant, would you be willing to take that out of the contract?” and see what happens. But I’m wondering if it would be beneficial at all to offer an acceptable alternative at the same time? For example – “Unfortunately I would not be able to sign a contract that contains a restrictive covenant of this scope, but I would be amenable to it if the restrictive covenant were to apply only to the county I’d be working in, an X-mile radius around my office locations, etc, etc.”

Basically I don’t feel like I have a lot of leverage and I don’t want them to withdraw the offer if I push too hard, especially I would be completely okay with an RC that is reasonably limited.

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You're supposed to feel like you no have leverage, but you do. You can just walk away and they have to start over. The interview and hiring process is very expensive, they dont want to lose someone over some new addition to the contract that no one else has to deal with Im sure. RCs are for the birds and just furthers to ruin medicine and entrench a generation into other peoples prime earning years, suppresses mobility and business creation.

[pulmdoc]

The point of negotiations is to reach a mutually fair agreement that protects the interests of all parties. Restrictive covenants are not inherently evil; I would certainly want one in the contracts of my physician employees. However, overly broad, punitive, or lengthy RC's are becoming the new normal as more and more physicians become employees instead of owners, and it's essential to be able to distinguish fair from unfair.

Fair: A reasonable geographic restriction around your practice location. Reasonable is flexible, rural areas can have a bigger radius than urban centers because of lack of doctors. My personal rule of thumb is that if you have to move to commute to your new place, it's too far.

Unfair: A large geographic restriction around any practice location owned by the employer, even if the practice done at those sites is unrelated to your practice. Huge physician networks can effectively bar you from practice if this isn't clear because you may always be 20 miles from some clinic of theirs.

Fair: A duration of restriction adequate for the employer to find a replacement. This may be 6 months in Manhattan and 2 years in Bismarck, but there is a reason for the duration.

Unfair: A duration long enough to keep you out of the market effectively permanently. Any duration clause that does not specify a measurable timeframe but instead states conditions that must be met to lift the restriction is potentially unfair.

Fair: The restriction is in force if the employee leaves the practice voluntarily or is fired for cause.

Unfair: The restriction is in force even if the employee is fired without cause. How would you like to be fired because you aren't wanted and then barred from getting a new job by the people that fired you?

Fair: The penalty for violation of restrictive covenant is spelled out clearly as well as how the employee can remedy.

Unfair: The penalties are so vague as to mean almost anything, or the remedies are financially ruinous. I was once offered a contract which required a $1M payout for violation of the restriction, and another $1M for leaving for any reason during the term of employment. Needless to say I didn't take it.

Fair: The restriction is specialty-specific, ideally specific to the exact role the physician is being hired to fill.

Unfair: The restriction is generally on "the practice of medicine", even if the employee does something significantly different than the job they were originally hired for. Some state courts have struck these down as overly broad, but why take the risk you'll have to end up in court?

Fair: Under a hospital income guarantee agreement, the hospital forces you to pay back the guaranteed salary if you leave early. This is a condition of Stark and is non-negotiable for the hospital. They can't take it out even if they wanted to.

Unfair: Under a hospital income guarantee agreement, the physician group forces you to sign a restrictive covenant. This is illegal under Stark, but that won't prevent groups from trying.

Fair: Non-solicitation clauses that prevent the physician from hiring directly relevant staff (nurses, practice managers, techs etc that worked directly with the physician). I'd be pretty peeved if an employee doc left to start their own practice and hired away the whole office in the process.

Unfair: Non-solicitation clauses that prevent the physician from hiring any former employee, even if the physician had no prior work relationship with them. Again, this is a much bigger potential problem when the employer is a health system instead of a private practice office.

This is hardly an exhaustive list, but these were the top things I was looking for in reviewing my contract offers, and I saw every one of what I listed as unfair restrictions in the job search, sometimes multiple instances in a single contract.

Bottom line, getting a restrictive covenant removed entirely is great, but getting one that protects you from being screwed over is perfectly fine. The net result is ideally that neither party can get screwed over as a result of the contract and if you can get that you'll be good. It is a very good idea to have a healthcare attorney review the contract before signing on the dotted line.