Printer-friendly format

The healthcare industry is, more than ever, a competitive business, much like other industries. But strong public policy considerations, including the unique doctor-patient relationship, have always limited the scope of covenants not to compete. However, the application of such covenants has not been eliminated. Last year, the Legislature tried to give some clarity to this aspect of the law.

Consequently, on January 1 of this year, a new law governing covenants not to compete signed by healthcare providers became effective. It clarifies which kinds of covenants related to healthcare providers can be enforced and how long enforcement of such covennats remains possible.

Under the new law, restrictive covenants signed by employed or contracted healthcare providers are deemed reasonable if the duration of the restriction is two years or less; the maximum geographic restriction is the greater of a ten-mile radius from the primary practice site of the healthcare provider while employed or contracted, or the county in which the primary practice of the healthcare provider while employed or contracted is located; or there is no geographic restriction, but the healthcare provider cannot practice at any facility at which the employing or contracting entity provided services while the healthcare provider was employed or contracted with the employing or contracting entity. However, the law makes clear that such restrictions are not binding on healthcare providers who have been employed or contracted by the same entity for at least six years.

Healthcare providers who sell their practice, or most of their practice’s assets, may in conjunction with the sale enter into non-compete agreements that restrict their rights to practice medicine, if the duration of the restriction and the allowable area of the restriction are reasonable under the circumstance. The only restriction regarding such agreements is that there remains a rebuttable presumption that the duration and area of restriction agreed upon are reasonable, which is to say that signed agreements can still be challenged in court and found unreasonable and therefore invalid.

Physicians who practice in either radiology or emergency medicine are not affected by the new law. Restrictive covenants regarding their practices have been deemed unreasonable. You simply cannot have an enforceable covenant not to compete with them.

There are two situations in which covenants not to compete signed before Jan 1, 2008, the effective date of the new law, remain enforceable. Those involve a hospital or a medical school’s faculty practice plan. Otherwise, healthcare providers who signed restrictive covenants before New Year’s Day are free to practice where they please, and to treat and solicit former patients as well as new ones in areas where they amy have built up a regular clientele while working for a corporate entity.

By way of background, Tennessee’s Supreme Court decided an important case in 2005 dealing with covenants not to compete signed by medical professionals. In the case, styled Mursfreesboro Medical Clinic, P. A. v. Udom, the Court ruled that most employment based covenants not to compete relating to medical professionals were both void and unenforceable because the violated the public interest. While recognizing the validity and usefulness of some covenants, the Court stated strongly that private contract interests between medical professionals and their employers should not restrict the individual’s right to choose his or her own physician or surgeon.

The Court recognized the two situations noted above - those involving a hospital or a medical school - in which restrictive employment covenants not to compete were proper. That is what led to the Legislature’s action last year. The new law is codified at T. C. A. 63-1-148.








March 2008



Click here for a PDF of this article

Tags:

None

Login and voice your opinion!