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Leaving Your Neurology Practice? Take a Look at Your Noncompete Clause

Article In Brief

The COVID-19 pandemic has left many neurology practices in a state of financial uncertainty. Neurologists may need to seek new positions, but first, they need to understand how a noncompete clause may impact their future employment opportunities.

As the COVID-19 pandemic jeopardizes the financial fortunes of medical practices, some neurologists may need to seek new positions. That requires understanding a provision of their employment contracts—the noncompete clause—that may have received only scant attention when the contract was signed.

A noncompete is a restrictive covenant, common in both employment and partnership agreements, that limits a physician's ability to practice within a defined distance of his or her current practice for a specified period of time after leaving that practice. Employment law is not part of typical medical training, so physicians often sign employment contracts without understanding—or thinking through the significance of—the noncompete clause, said Joseph S. Kass, MD, JD, FAAN, professor of neurology, psychiatry, and medical ethics at Baylor College of Medicine.

“Non-competes are serious things that are enforceable,” he said. “So do not think that they're going to go away or that, ‘Oh, but the partners are so nice—they would never hold me to it.’”

The wording of a noncompete clause may seem straightforward at first glance, but could be interpreted in multiple ways. Neurologists should consult a lawyer before signing a physician agreement and if they are considering a move out of a practice, said Dr. Kass, an attorney and director of the Comprehensive Stroke Center at Ben Taub Hospital, the flagship hospital of the Harris Health System.

Having a noncompete clause in physician contracts is good business practice, said Brad Klein, MD, FAAN, a partner in Abington Neurological Associate in suburban Philadelphia, because it protects the business owners who have invested in and grown the practice over time. But noncompetes may be enforceable only if they set reasonable limits on time—the number of years that the neurologist cannot practice in a certain area—and the geographic area that is prohibited.

That said, neurologists should proactively avoid noncompete problems, if possible, because resorting to a judicial decision over a noncompete is a costly endeavor. “If it's overly egregious, a court might find that it's not enforceable,” Dr. Kass said. “But that's thousands and thousands of dollars tied up in litigation and not something you want to get into.”

Know Your State Law

“Noncompetes in general are a state-specific issue, so a physician entering into an agreement has to be very conscious of which state law is going to apply,” said Barbara Grandjean, a health care employment attorney in the Denver office of Husch Blackwell.

Twelve states—Alabama, California, Colorado, Delaware, the District of Columbia, Massachusetts, Minnesota, Montana, Nebraska, Nevada, North Dakota and Oklahoma—generally consider noncompete clauses involving physicians to be void, according to a recent review conducted by the Council of State Neurosurgical Societies.

Even if a state prohibits noncompete clauses in physician contracts, it may allow contract provisions that require “liquidated damages” be paid when a physician leaves a practice, said Karen E. Davidson, a Philadelphia-based health care attorney. “Even though you technically could compete, the fact that you might owe hundreds of thousands of dollars—maybe a multiple of your compensation—is its own restriction,” she said.

Colorado, for example, generally considers contracts that restrict the right of a physician to practice medicine after terminating employment to be void. However, it does allow contracts that require a departing physician—or the physician's new employer—to pay actual damages, such as lost revenue from patients who follow the departing physician, Grandjean said. But a quirk in Colorado's law shows just how important it is that physicians understand the rules about noncompetes in their own state.

In 2018, a new law was passed to prohibit damages, in certain circumstances, from being recovered from a departing physician or the physician's new employer if that physician treats patients with certain rare disorders. The law looks to the National Organization for Rare Disorders Inc. to define which disorders are considered rare; its list includes Alzheimer's disease, muscular dystrophy, cerebral palsy and other neurologic conditions that are not all that rare. That nuance might give neurologists in Colorado leeway to compete with a former employer without being required to pay damages, although a lawyer should be consulted first.

Constantine Moschonas, MD, FAAN, medical director at Four Peaks Neurology in Scottsdale, cited a different state nuance at work in Arizona. Because Arizona is a right-to-work state, he was surprised to see a noncompete clause in the contract he signed in 1993. Upon consulting with an attorney, he learned that the restriction pertained only to setting up a competing practice. “There was no issue as far as me joining a different practice or a hospital practice; it was only exclusionary if I decided to go out and start my own office within a five-mile radius,” he said.

When Leaving a Job

If a practice terminates a physician's employment because it needs to downsize, the noncompete clause may still be enforceable. “A contract is a contract,” Davidson said.

That said, enforceability may vary by state. Because Arizona is a right-to-work state, Dr. Moschonas said, a noncompete is not enforced if a physician is terminated. “If the practice terminates the employee because there is not enough work, that individual could open his or her own office next door or half a mile away and start working immediately—or join another practice or a hospital,” he said.

Dr. Klein encourages any neurologists who are leaving a practice because of the pandemic-related economic downturn to ask the practice partners to nullify the noncompete clause. “If they can't sustain you as part of the practice, frankly they should sign off on it,” he said.

Communication is key in this situation because the individual neurologist may not have much legal leverage at the time of departure. “Ideally, you're still in conversation with the employer and, if you are providing unique services in a particular subspecialty, the employer may be happy for you to continue to care for certain patients,” he said.

Hannah Watene, a neurology recruiter for Rosman Search, sees neurologists pursuing temporary options—teleneurology and locums tenens positions, for example—during this time of cutbacks. If their contract included a noncompete, she encourages physicians to make the former practice administrators aware of their plans to avoid any problems. “You don't want to assume that something is OK and then find out you are against the law,” she said. “Being transparent on the front end will give you clarity.”

When Evaluating a New Position

When Dr. Klein joined his suburban Philadelphia practice many years ago, the contract he was offered included a noncompete prohibiting him from practicing within a five-mile radius of any location in which one of the practice's neurologists provided services. One of the practice partners was teaching at Temple University in Philadelphia's urban core.

“The wording is really important,” he said. “I worried I would lose not just the suburbs in the area where my home was located but also lose the city as well, which could have caused problems if I ever wanted to practice there.”

After explaining his concerns to his new employer, he was assured that the noncompete was intended to apply only to the radius around the practice clinics, and the clause was reworded to make the restriction clear.

His experience offers several lessons for other neurologists evaluating new opportunities, according to the experts who spoke with Neurology Today.

  • First, get clear on the noncompete restrictions offered in a contract. In a densely populated area, the geographic restriction might be small—say two or three miles—while a rural practice might be 25 miles or even more. “It depends on what the health system considers their area of service to be, so it could be a radius around just one hospital building or it could include a radius around their satellite clinic 10 miles away,” said Watene. “You don't want to be that person who assumed the radius didn't cover that satellite clinic and now you have moved on and you're in violation and lawyers have to be drawn in and it gets bad.”
  • Also, don't assume that you know what a certain radius means for future employment options. “Get out a map and a compass and draw the circle that is off-limits for the duration of the noncompete,” Dr. Kass said. “Texas Medical Center, where I work, is huge but it is compact. If I had a noncompete that was five miles, I easily could not work in any academic center in Houston.”
  • Consider the possibility that the new job will not work out, Dr. Kass said. What would you do if you had to abide by the noncompete in your contract? That's why you should analyze your options for your next move before you sign an employment contract, Davidson said. “Develop your strategy so you know where you could go to work if the noncompete takes effect and use it to inform your contract negotiations,” she said.
  • Recognize that the noncompete restriction can be a deal-breaker. If your family situation requires that you live in a certain area, for example, and a noncompete would prohibit you from working within a reasonable commute, that reality must be faced. “You don't want to sign onto something that's not going to be a livable situation for you,” Watene said.
  • In some situations, negotiating a more palatable noncompete is possible. “To think that you will not get a non-compete is unrealistic, but minimizing the geography—say, a seven-mile radius instead of ten miles—or minimizing the time from two years to one might work,” Dr. Kass said.

Such negotiations are more likely with smaller practices that can customize contracts to meet the needs of individual physicians, Watene said. “If you're looking at a job in a large hospital system, the contract applies to hundreds of physicians so there's not going to be too much negotiation room for a factor that applies to all the physicians in the system,” she said.

Think Long-Term, Big Picture

Dr. Moschonas encourages neurologists to educate job applicants about why employment contracts include non-competes. His first employer did that for him. “He said, ‘You have every right to leave the practice, and I would never stop you from that,” Dr. Moschonas recalled. “But I'm investing in you—many thousands of dollars—for the next two years and I'm taking a chance on you.”

Watene, the neurology recruiter, encourages job-seekers to consult an attorney to explain, in plain English, the details of an employment contract before they sign. Contract negotiations should be considered part of the interview process, in which both parties are getting to know one another, she said. Reluctance to be candid about your concerns might be a red flag. “

If you feel like you can't even talk to your potential employers in the interview stage, that is probably not the most promising foundation to be moving forward into an employment situation,” Watene. said. “Candidates should definitely keep that bigger picture in mind at this stage.”

Moschonas agrees, saying the goal should be mutual satisfaction rather than winning a competition. “The key is that both parties walk away feeling good about the contract which they signed because that will make for a long-term positive relationship,” he said. “A contract that is one-sided is never a good long-term solution.”

Link Up for More Information

• Huntoon K, Stacy J, Cioffi S, Swartz K, et al. The Enforceability of Noncompete Clauses in the Medical Profession: A Review by the Workforce Committee and the Medicolegal Committee of the Council of State Neurosurgical Societies Neurosurgery 2020: 87 (6): 1085–1090.
• Kass JS, Rose RV. Common legal considerations when moving to a new medical practice Continuum 2018: 24(4): Headache:1209–1214.