Restrictive covenants, noncompete clauses, whatever you choose to call them, are a contentious subject in emergency medicine. Are they necessary? Are they fair? Are they enforceable? I posed these questions to staff emergency physicians, ED directors from groups of all sizes, hospital employees, small, regional, and national contract holders, and even the president of the American Academy of Emergency Medicine. The answers were varied, interesting, and in some cases, a bit surprising.
I asked which restrictive covenants are warranted and fair, which are not, and which should be removed from all contracts. A large portion of physician respondents said restrictive covenants that prevent a physician from staying on at an ED if his group loses the contract or restrictive covenants preventing departing physicians from working in a geographic area for a determined period of time have become fading issues because of the firm stands taken against them by AAEM and the American College of Emergency Physicians. Many states have outlawed clauses that restrict where a physician works after leaving an employer.
One physician noted that “it is illegal for a law firm to have a noncompete clause in its contract with a member of the firm.” Despite all this, I recently heard from a graduating resident interviewing with a regional group in Texas that slips a clause in their contracts restricting physicians who leave their employ from working anywhere within three counties for a period of one to two years!
Experience and maturity seemed to have some effect on the responses to this subject. Many younger physicians, including graduating residents, had a blanket negative attitude toward all restrictive covenants and noncompete clauses. On the other hand, physicians with some years under their belt, especially those who had administrative experience, differentiated between noncompete clauses designed to protect the contract from interference by a physician during employment and those that prevented a physician from pursuing employment in the hospital or region after a group lost the contract or after termination.
Protecting the Contract
Harry Kintzi, MD, the past president of Lancaster Emergency Physicians and a former medical director of the ED at Lancaster (PA) General Hospital, said it was understandable that a group wants to protect its contract. “Looking at the issue from a group and hospital standpoint, they invest time and money in bringing a new physician on board. If a physician splits off and tries to take over the current contract, the group will obviously be threatened and rightly so,” he said.
He said if the group disbands, however, there should not be a noncompete clause at that hospital, and that large contract groups that lose their contracts should not feel threatened by one or two physicians who want to stay. Dr. Kintzi noted that geographic restrictive clauses pose an interesting scenario. “If a less desirable group in a particular location brings in a doc who really wants to be in another area group that has no current opening, the recruiting group may feel it is being used if and when the doc leaves to go to that other group,” he said. “Time and recruitment dollars have been invested and a physician leaving hurts the recruiting group. Conversely, from a physician viewpoint, there shouldn't be a noncompete clause preventing one from practicing across town as patients go the ER not with a specific physician preference but because of a hospital preference.”
I have been working on this topic with Thomas Falvo, DO, who is emergency medicine residency faculty at York Hospital in Pennsylvania, with an eye toward creating a lecture on physician retention. Dr. Falvo said all is not black and white on restrictive covenants and noncompete clauses. “There is a widespread misconception among many in the emergency medicine community that any such contractual restrictions of trade are unwarranted and therefore legally unenforceable,” he said. “Neither assumption is necessarily correct. While judgments have varied by jurisdiction, courts have recognized the legitimate proprietary interests of employers as valid provided enforcement would not interfere with the welfare of the community, like restricting the public's access to health care.”
Dr. Falvo said enforcing post-termination agreements depends in large part on the conditions surrounding the termination. “Generally, when a physician is discharged for cause, contractual restrictions are more likely to be enforced,” he said, adding that the threat of sanctions is far less common when the parting is amicable or the contract is terminated through no fault of the physician. “Restrictive covenants may be somewhat effective deterrents to a physician leaving impulsively, particularly in rural areas where few alternatives exist, but won't keep physicians working under unacceptable conditions,” Dr. Falvo said. “If an otherwise valuable employee is dissatisfied enough with the working conditions to leave, the employer's interests are best served by either making a sincere effort to correct the issues, thereby retaining the physician, or allowing the person to be more content elsewhere.”
Tom Scaletta, MD, the president of the American Academy of Emergency Medicine, was quite candid about the fact that he considers this topic “small potatoes” in comparison with issues such as prohibitions on corporate practice or fee-splitting. He said AAEM has no problem with clauses that restrict physicians during employment, like those that prevent moonlighting or tampering with the contract. Post-employment restrictive clauses are a problem, however. “Why are these clauses in contracts?” he asks. “You see them in business as they pertain to trade secrets, proprietary information, clients, etc., but there are no secrets to the practice of emergency medicine.”
The real reason these clauses exist, he said, is simply for their value to contract holders. “If someone doesn't want to fight the contract holder and they want to be released, it costs less to settle than to go to court,” he said. “A physician could probably fight it in court in every state and win, but those costs would be very high.”
Dr. Scaletta explained that physicians in a group are “married to the contract holder, and if there is a dysfunctional marriage, they need to file for divorce or find a way to get an annulment.” He added that noncompete clauses only benefit contract holders. He advises job-hunting physicians to cross out termination restrictive covenants in a contract and sign. “You probably won't get a problem with that,” he said.
Perhaps the most surprising response came from Lynn Massingale, MD, the CEO of TeamHealth. “Things have changed. Graduating residents and experienced physicians don't want to see clauses that keep them out of a hospital if we lose the contract through no fault of their [own]. Consequently, the current standard contracts from TeamHealth have no clinical prohibitions at that hospital unless the doctor interfered with or solicited the loss of the contract.
“A staff physician can go across the street or work anywhere he wants after leaving our employ,” Dr. Massingale said. If, however, a physician is in a leadership position such as associate, medical, or regional director, the situation is different. “If you choose to take on a leadership role with TeamHealth or any other group, for that matter, you have chosen a special role which comes with a different standard for business issues, but you also get additional training and compensation for that role.”
Those physicians have restrictive covenants preventing them from taking another leadership role within 20 miles for two years. “Facility medical directors are free to take a clinician position at the hospital across the street; there's no restriction there,” said Dr. Massingale, “but a medical or regional director develops special relationships within the hospital and the community. A hospital is going to be upset about the loss of those relationships, and will see the transfer of those relationships to a competitor in the community as an inappropriate advantage. If a physician thinks this is unfair, he shouldn't take a leadership position with TeamHealth.”
Dr. Massingale said TeamHealth's interests are the same as the hospitals they serve on this point, and those hospitals want this restriction. After all, hospital CEOs often have restrictive covenants, too, he said.
I also asked all the respondents in this survey if they believed noncompete clauses were a good way to retain physicians, and no matter the position, level, experience, or employer, all physicians responded with an unequivocal “no.”