With tightening labor markets and the increasing mobility of healthcare workers, including physicians, now is a good time to revisit non-compete agreements to ensure they are enforceable. Texas courts will generally enforce non-compete agreements as long as they are ancillary or part of an otherwise enforceable agreement and do not contain restraints greater than necessary to protect the employer’s legitimate interests. These interests include business good will, trade secrets, or other confidential and proprietary information.
When the non-compete at issue pertains to a physician, it is important to specifically identify specialized training that will be provided, describe the responsibilities of the position, and describe the physician’s access to confidential information if appropriate. These details help to demonstrate that the non-compete agreement is designed to protect the business interests of the hiring party. Additionally, the Texas Business & Commerce Code contains several specific requirements that must be satisfied in order for the stated restrictions to be enforceable:
- First, the agreement must not deny the physician access to patient lists covering a period of one year prior to the termination of employment, and must provide access to patient records upon patient authorization for a reasonable fee. Even though a physician may have established a relationship with a patient while an employment agreement is in place, no one ‘owns’ a patient. This requirement recognizes the obligation of physicians to give notice of their departure to existing patients and a patient’s right to choose to continue treatment with a departing physician in some circumstances.
- Second, the agreement must provide for a buy-out of the covenant for a reasonable price or, at the option of either party, a price to be determined by an arbitrator; and
- Third, the agreement must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient during the course of an acute illness even after termination.
Tex. Bus. & Comm. Code § 15.50(b). In addition to the above requirements, the following should be considered when negotiating the breadth of the restrictions contained in a non-compete agreement:
- The scope of stated restrictions should directly relate to activities of the employee and should not be more restrictive than necessary.
- A covenant is unenforceable without a geographic limitation. Geographic restrictions should not exceed the area where the physician worked. The greater the extent of an employee’s involvement in the employer’s business, the greater the enforceable geographic area will be. Therefore, physicians serving as medical directors or overseeing more than one location can be subject to greater restriction; and
- There must also be a reasonably stated duration that balances the employer’s interest against the resulting hardship on the employee. A shorter duration is more likely to be enforceable, but longer periods may be justified where there is greater involvement in an employer’s operations.
Ultimately, a court will determine the enforceability of a non-compete agreement when presented with a request for injunctive or other relief. Keeping patient interests first, using common sense, and seeking guidance on specific requirements is critical to ensuring enforcement of an agreement when necessary. The party seeking enforcement always has the burden of demonstrating applicable requirements are satisfied.
In the event a court indicates that a non-compete is overbroad or unreasonable, the enforcing party should always request reformation. Texas law acknowledges the need for case-by-case analysis in connection with non-compete agreements and requires a court to reform, rather than invalidate, an overbroad restraint upon request. Failure to request reformation may result in a waiver.
In view of the competing interests and complex issues involved, companies should consult experienced non-compete litigation counsel before suing for enforcement.