Restrictive covenants in physician agreements: What you need to know

A common issue in almost all physician employment agreements concerns restrictive and non-solicitation covenants. Some physicians and employers have the impression that such covenants are not enforceable, when the truth is more complex.

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While courts may be reluctant to enforce such covenants and will try to limit their scope, properly drafted restrictive and non-solicitation covenants are valid. Enforceability hinges on whether the covenants are reasonably necessary to protect the interests of the medical practice or the hospital.

What’s crucial are the specifics of the covenants: What items are covered, the length of time that the covenants will remain in place, and the geographic scope of the restrictive covenant.

Restrictive Covenants

A restrictive or non-compete covenant prohibits a physician from practicing medicine during the term of employment and for a period after termination within a set geographic area near the employer’s offices.

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A restrictive covenant needs to be related to the profession that the employee engaged in on the employer’s behalf, generally limited to the doctor’s specialty. The length of the covenant should encompass the period of time that the physician is employed. The agreement may also prohibit the physician from working for any other person or entity during the term. Usually, restrictive covenants continue in force for up to two years after termination.

The geographic scope of a covenant generally must relate to the area from which the practice or the hospital draws most of its patients. The area can be described by referring to towns or counties, zip codes, or, in densely populated urban areas, streets. Often, a “radius” around the office of the practice or hospital is used. Keep in mind that a radius is not driving distance but is measured “as the crow flies.”

Non-Solicitation Covenants

A non-solicitation covenant prohibits a physician from soliciting patients of the employer and soliciting and hiring other employees of the employer during a specified period of time.

Non-solicitation provisions usually have the same length as restrictive covenants.  In terms of what is included in their scope, often they include prohibitions against soliciting patients or referral sources and further prohibitions against soliciting and hiring employees of the practice or hospital.

The physician and employer may also discuss some of the following points related to such covenants:

• Will the covenants apply no matter the cause of termination, or will they be waived if, for example, the employer decides not to renew the agreement?

• Should the employer include liquidated damages? If so, the amount chosen must be reasonably related to the damages expected to be suffered.

• Will there be any exceptions to the scope of the covenants? For example, if the physician has a pre-existing relationship with another practice in the restrictive covenant area or if the physician wishes to maintain privileges at a hospital located in the area.

John Peter Kraljic, JD, is a partner at Garfunkel Wild, P.C., in Great Neck, New York. Send your legal questions to medec@advanstar.com.