Physician Noncompete Fights: When Should Physicians Consider Challenging a Restrictive Covenant?

At Michael Johnson Legal, we work closely with physicians facing employment contract negotiations and enforcement questions, including noncompete clauses. We were recently working with a client in Wisconsin on whether they should consider a legal battle over their rather punitive noncompete. We worked through several scenarios that may improve the probability that the physician would be successful in a litigated matter over their noncompete, and I wanted to share that analysis with you now.

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What does a noncompete clause look like?

Here is a common draft of a noncompete clause for reference. 

Section 11.4 NONCOMPETITION: During Physician’s employment and for a period of two (2) years after termination for any reason, Physician shall not practice medicine or otherwise participate in the business of the provision of healthcare services within thirty (30) radial miles of Employer’s facilities. Physician shall be relieved of compliance with this section upon payment of Physician’s last 12 months of total compensation earned. 

Here are the high points for this example. It applies…

1. During employment, which means that any approved moonlighting positions must occur outside of the noncompete restricted area;
2. Upon termination, regardless of the reason for termination, even if the former employer terminates without cause or the physician terminates for cause.
3. Regardless of whether the employee is in a leadership position or is purely clinical;
4. Regardless of how long employment has lasted, making it equally enforceable even if the employee has been with the employer for 5 minutes or 20 years;
5. Regardless of whether the physician is inpatient only or doesn’t have a patient panel;
6. To any and all practice of medicine, and is not limited to only the nature of work performed for the employer;
7. For two years post-employment;
8. For thirty miles from every employer facility, meaning there might be multiple 30-mile bubbles to consider;
9. Unless the physician pays the employer a buyout of 12 months of total compensation, and
10. Regardless of the personal impact on the physician, even if enforcement would create an undue hardship.

This may seem terrible, but this example would not be a shocking noncompete for us to see in the firm. Before you sign any physician employment agreement that includes a noncompete, we highly encourage you to pull it up on a map and be aware of what compliance would look like. Here is an example of what a 30-mile radius would look like around Kohl Center in Madison, Wisconsin (Go Badgers 😊):

How does the law on noncompete clauses work?

At the federal level, there have been efforts by the Federal Trade Commission to make noncompete clauses unenforceable for all employees across the country. However, those efforts have not come to fruition, and the FTC recently suspended all efforts to fight the lawsuits challenging such agreements. For now, this issue is primarily left to each individual state to decide.

While the state laws specific to noncompetes vary between the states, and some states like Louisiana and Texas have specific rules, there are several issues that will commonly provide advantages and disadvantages under the various ways noncompete clauses are written.

Most states have a “general reasonableness” statute that looks at the totality of the circumstances around the noncompete to determine whether it is valid and enforceable. It considers the business interests of the employer, protection of trade secrets, and the impact on the physician to determine enforceability.

Most state caselaw on physician noncompete enforcement is mixed, typically giving individual judges wide latitude in crafting decisions. It’s often quite difficult to challenge the judge’s decision upon appeal. 

Here is an example noncompete statute from Wisconsin:

103.465 Restrictive covenants in employment contracts. A covenant by an assistant, servant or agent not to compete with his or her employer or principal during the term of the employment or agency, or after the termination of that employment or agency, within a specified territory and during a specified time is lawful and enforceable only if the restrictions imposed are reasonably necessary for the protection of the employer or principal. Any covenant, described in this section, imposing an unreasonable restraint is illegal, void and unenforceable even as to any part of the covenant or performance that would be a reasonable restraint.

This statute does not provide much guidance. The burden of proof is on the employer to establish the reasonableness of the noncompete restriction. In general, noncompete agreements are disfavored in the law and are construed in favor of the employee. Wisconsin caselaw may cite five factors that are considered in this analysis:

1. Is the restriction reasonably necessary to protect the employer?
2. Is the restriction reasonable in terms of time limitation?
3. Is the restriction reasonable in geographic scope?
4. Is the restriction unduly burdensome on the employee?
5. Does the restriction violate public policy?

Most of the issues discussed below might be commonly applied across the states, but it is important to get your own independent legal consult when considering whether you want to fight a noncompete in your state and under your circumstances. 

What is the most common path toward a noncompete legal battle?

In most situations, there are opportunities to try to resolve the legal dispute before filing a lawsuit. Here is a common path:

1. Upon termination, the physician might informally ask the employer to waive the noncompete. This is rarely successful, but often a necessary first step.
2. The physician may then benefit from hiring a lawyer to send a professionally drafted demand letter. This letter will outline the facts of the matter and discuss relevant statutes and case law, and ask the employer to waive the noncompete without filing a lawsuit. This move often puts the decision on enforcing the noncompete in the hands of a lawyer representing the employer, which may encourage the employer to seriously consider avoiding a legal battle when enforcement would be problematic or against their sound business judgment. We see mixed results at this stage. Some employers may respond favorably, while others may not respond at all.
3. Next, it’s often prudent to consider drafting a lawsuit against the employer demanding that the noncompete be found unenforceable. Following up on an initial demand letter with a second attempt that includes a drafted lawsuit can further encourage resolution. We see mixed results at this stage as well, and the outcome really depends on the situation.
4. If Steps 1-3 don’t work, it’s likely time to decide on whether to file your lawsuit. Some lawsuits don’t make it all the way to a final decision in court, but many do, and you should be prepared to take the matter all the way. In many cases, the former employee has to decide whether the financial and professional risks of litigation outweigh the restrictions placed on them by noncompete agreements.

What are some of the top issues?

Here is a non-exhaustive list of some issues a court may consider when determining whether the noncompete is compliant with state law.

1. How was the contract terminated?

There are four main ways that a physician contract can be terminated:

• The physician can terminate for cause.
• The employer can terminate for cause.
• The physician can terminate without cause or non-renews a term.
• The employer can terminate without cause or non-renews a term.

Physician Termination for Cause

It’s exceedingly rare for a physician to be able to terminate for cause. This is typically reserved for situations where the employer stops paying the physician or there is a rather drastic change in the physician’s work responsibilities. Think, “WOW, that was a shocking turn of events, sounds terrible.” However, if you have cause, this is a very favorable fact for noncompete enforcement actions.

Employer Termination for Cause

Employers will sometimes terminate for cause, and in some cases, this is quite reasonable. For example, if the physician loses a medical license, loses a DEA license, stops showing up for work, shows up drunk, commits a felony, or otherwise commits significant malpractice, most physician employment contracts allow the employer to terminate for cause immediately and stop paying the physician anything further.

This is not super common, but it is not a good fact for you in a noncompete enforcement action. Alternatively, one could argue that an employer terminating for cause should have no concerns about that physician competing locally.

Physician Termination Without Cause

The most likely way that a physician contract will end is when a physician terminates without cause because they have found another opportunity that is more in line with their career goals and their life plans. We estimate in the firm that about 90% or more physician employment contracts end with the physician firing the employer. Unfortunately, this is probably the strongest position that an employer can be in during a noncompete battle.

They could argue that the noncompete was meant to avoid local competition with their closest competitors, and a physician leaving for an opportunity very close by challenges their economic interests in the most common and most protectable way. They could argue that allowing a physician to use employment with the attractive local competitor served as a practice incubator of sorts, and benefiting from all the local patient introductions and referral source connections is unfair to the employer.

We may argue that a noncompete is not meant for protecting relationships – that’s the providence of the nonsolicit clause – and they should have drafted their contracts differently to protect against this (or, simply argue that the physician won’t be violating a nonsolicit clause that already protects the employer in this way).

Employer Termination Without Cause

Conversely, the best situation would be when an employer terminates a physician without cause. In this scenario, the physician did nothing wrong, but the employer simply wants to move on and hire somebody else, or is maybe reducing their service line because of a lack of clinical volume or other economic concerns. When the employer is the sole reason for termination, it seems less justified to enforce a noncompete that prevents the physician from continuing to practice locally. This would be a great fact for you!

You might think this should be an automatic win for physicians or not even included in physician contracts, but that’s not true. We estimate in the firm that about 80% of first draft physician employment agreements that have noncompete clauses allow the employer to terminate the contract without cause and still enforce the noncompete. Some physician contracts come with this already carved out, but it’s also a very common negotiation position for noncompetes that we consider in the firm.

However, if your contract allows the employer to terminate without cause and still enforce the noncompete, seriously consider getting a legal consult with a local litigator before you make any decisions. Ideally, the lawyer would have experience in business litigation, employment litigation, or healthcare litigation. It would be great if that lawyer has successfully litigated a physician noncompete, but there are not tons of lawsuits filed on this in every state, and it likely does not need to be a prerequisite.

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2. Is the physician simply employed, or are they in a leadership position?

If physicians are simply employed and are not in any type of leadership position, I believe courts will be a bit more sympathetic to their situation. As you move into a leadership position and you’re managing other physicians and other non-physician practitioners, I see former employers potentially having a stronger legal standing to argue that enforcement of the noncompete is justified and reasonable to protect their business interests, including trade secrets.

If you are considering a change in employment soon and are offered a leadership position, consider getting a legal consult about the impact of this change in your work duties and expectations against the backdrop of noncompete enforcement.

Additionally, if you’re “moving up” from a service line position with one employer to a leadership position within the noncompete zone for another, this is likely not a good fact for you. 

3. How long has the physician been working with the practice?

I believe courts are a bit split on this issue. I could see a court saying that a very short employment, say two years or less, should not justify the employer’s legitimate business interest in preventing the employee from competing locally because they have not built sufficient local relationships worth protecting.

Conversely, I could also see the counterargument that suggests an employer needs a certain amount of time where the physician is employed with the practice before their economic interests are protected from local competition, citing losses sustained during a ramp-up period for a physician.

I could see this being stronger for employers when the physician’s position requires ample ramp-up time, potentially in surgical subspecialties, but probably less so in inpatient-only type roles where no patient panel is building and they are simply seeing inpatients that are admitted to the hospital regardless of which physician is treating that patient.

Additionally, if a physician has been with the practice for a long time, I could see a court saying that the employer’s legitimate business interest in early career turnover and associated costs has been resolved, and the noncompete should go away. We sometimes negotiate for this in physician contracts. 

Louisiana law has incorporated this into its new physician noncompete statute. It’s called a sunset clause, which says that if a physician has been employed and working consistently for 3 to 5 years, then upon completion of that period, the noncompete would be made invalid and unenforceable.

A good litigator will check the local case law on this point and determine whether it’s a fact worth advancing and promoting, or whether courts have cut the other way.

4. Does the physician have a patient panel? Are they in a hospitalist-only specialty?

Courts may consider whether the physician’s patient panel and staff are at risk of leaving with the physician to their new practice. If the physician can essentially use the employer as an incubator for their new practice that they can easily take those relationships elsewhere, I could see a court having sympathy for an employer and their legitimate business interests. However, if this is not the case, a court could see it differently.

For example, in an inpatient-only position, or in a situation where the panel is unlikely to be affected and there’s not a loss of patients expected, then this could be a favorable fact for an employed physician. We believe physicians in emergency medicine, urgent care, shift-based hospitalist-only positions, internal medicine, critical care, etc., are in a better position here. It could be considered ‘not reasonably necessary to protect the employer’ under Wisconsin’s caselaw, and may be considered in a similar way under another state’s law.

This also dovetails nicely with the nonsolicit clause, and sometimes citing to the nonsolicit clause as ample enough protection for the employer’s economic interest can be a viable defense to a noncompete.

5. Does the noncompete prevent the physician from doing everything in medicine, or only things that they did for the employer?

The employer is in a better position if their noncompete is narrow and does not extend beyond what the physician did for the employer, making it more reasonable for their protected interests. For example, consider a noncompete that banned all practice of medicine for a pain management physician, even including an anesthesia-only position within the noncompete restricted area. We believe this would be viewed less favorably than a more narrowly tailored noncompete that only applied to pain management.

Similarly, consider a psychiatrist who only treats children and adolescents under the age of 18 in an outpatient setting for an employer and wants to leave that employment and work only with adults or only inpatient. We believe a court would be more likely to have sympathy for that employed physician. This depends on the unique circumstances, and we must look very closely at what you’re doing in your new employment and compare it to the prior employment. 

Another example would be going to a concierge-only, cash-pay-only primary care practice, when the primary payers when working for the employer were insurance and Medicare/Medicaid. We’ve seen this argument advanced in other cases with mixed results, but depending on your circumstances, this could be a strong argument to advance.

Additionally, we suspect that an internal medicine-trained physician leaving a primary care position for urgent care or a pure hospitalist position without a patient panel might experience more sympathy from the court.

6. Is the subsequent employment in a different practice setting?

If the subsequent employment is of a different nature, like working for an academic institution in a pure or primarily teaching role, or potentially for a Veterans Affairs position, or maybe for an Indian nation, we could see this as a favorable fact for the physician. Conversely, if the subsequent employment is with a similar type of employer and doing the same thing as they did in the previous employment, we could see this as an unattractive fact.

Consider this as you’re evaluating subsequent employment opportunities, as we also see employers willing to voluntarily waive noncompetes when the nature of the work is very different from the work you’re doing for them. Most employers might be embarrassed in court to argue that a job with the VA is competitive, particularly if they have no connections with the VA or its patient population.

7. What is the temporal length of the noncompete?

About 95% of noncompetes we evaluate in the firm are between one year and two years long. If it’s longer than two years, many states have negative case law around enforcement. Conversely, I could see a court finding more sympathy for the employer when the noncompete is only one year or less, citing this as more reasonable in comparison to the impact on the physician.

This is also a very common negotiation tactic in the firm. When we see a two-year noncompete where the physician is highly likely to want to stay in that geographic area upon termination, we’ll often recommend considering a request to reduce the noncompete down to one year. Finding a locum or part-time position outside of the noncompete bubble for only one year is much more palatable than the same for a two-year provision. Keep this in mind as you’re negotiating noncompetes.

Conversely, if the next employment is highly likely to be outside of the noncompete bubble anyway, thinking primarily about super sub-specialized positions, or folks that are highly focused on limited academic roles that are unlikely to be duplicitous in the same geographic area, this might not be a negotiation priority.

8. How large is the geographic scope of the noncompete?

If the geographic scope of the noncompete is greater than what’s necessary for the employer to protect their legitimate business interests, courts might be more willing to side with the physician. For example, if your patients typically travel from less than 5 miles from your work location, but the employer wants a restriction that expands multiples of that reality, it suggests the noncompete might be unreasonable.

This is also a common negotiation tactic in the firm. When we see an expansive noncompete, we sometimes negotiate for a reduction to open opportunities that might be viable if the physician did not want to leave the community upon termination.

9. How burdensome is the noncompete on the physician?

Courts may be more sympathetic to physicians when enforcement of the noncompete practically means leaving town, uprooting family and community, and having an overly burdensome impact. A physician here might want to point out the personal or economic hardship associated with enforcement and ask the court to compare that with how reasonable the employer’s legitimate business interests are in enforcing this noncompete. This turns on specific facts of your situation.

For example, if there is a 30-mile noncompete and there were 2 or 3 opportunities within the bubble, but the next closest reasonable opportunity outside of the bubble was 80 miles away, signaling that the physician would have to uproot their lives and move from the community, this might be a very attractive fact for the physician. Also, physicians could point to the additional impact of commute times and costs associated with complying with the noncompete. A physician may want to consider sharing the personal impact, including family considerations. 

10. Is there are reasonable buyout clause?

Occasionally, we see noncompete clauses that include a buyout option, allowing the physician to sidestep enforcement by paying some penalty. Sometimes these are unattainable. For example, Texas requires a buyout clause in noncompete provisions, but it’s usually set at a uselessly high price. 

However, we sometimes find employers including or willing to negotiate a reasonable buyout in the 5-figure range. It really just depends. However, if an employer has a noncompete buyout clause that is below $100K, it’s very difficult to recommend that a physician go through all the above. We also suspect some courts may find a reasonable buyout an appropriate and enforceable remedy.

11. How burdensome is the noncompete on the community?

Lastly, local considerations can be impactful. If enforcement of the noncompete would be that community now no longer has access to a critical medical service, then the restriction could violate public safety and policy. For example, if a small community would lose its only pediatrician or OBGYN, this may be convincing to a court that enforcing the noncompete is unreasonable. If the community were to lose one of a couple of dozen cosmetic plastic surgeons, this might not be an important consideration.

Costs of litigation

This is a wildcard and an important consideration. Drafting a demand letter, drafting a lawsuit, and attempts to negotiate the noncompete before filing a lawsuit will likely cost a 4-figure or maybe a low 5-figure amount and are highly unlikely to be cost-prohibitive. However, once you file, you could experience substantial legal fees.

The simplest and cheapest case would be when one physician files a declaratory judgment action on the sole issue of noncompete enforcement before any violation occurs. If there are no ancillary legal claims, you might be able to litigate this for $15,000 – $30,000. We have quoted clients on a flat fee basis under these terms.

However, if there has been a violation of the noncompete and there is a financial damages claim made by the employer that the physician must now defend against, you’ll likely need to spend more. Additionally, if you’ll be advancing other claims, like wrongful/improper termination, malpractice tail coverage, compensation clawback or waiver issues, the nonsolicit clause, or other issues, this will likely cost more. 

Know your rights and options!

This is just a starting point for typical issues that may arise in a noncompete battle. There are certainly more opportunities and arguments to be made, and each individual situation can vary. It’s also important to consider whether there are any other viable employment law claims that may be related to your termination, and may create leverage to negotiate the noncompete without litigation.

While physicians are not typically very excited to have a legal battle, employers don’t like these either. There is a good reason that there are very few physician noncompete lawsuits, despite hundreds of thousands of physicians working under contracts with noncompete clauses. Showing that you’re willing to consider a legal fight could be a good step in a noncompete negotiation on the front end.

Please keep in mind that this is just a general discussion and is not specific to you or your personal situation. When evaluating a physician contract, it’s best practice to expect the noncompete to be enforceable under state law as written and try to negotiate it in a way that makes it reasonable to comply with upon termination.

Don’t rely on ‘winning’ a noncompete fight down the line. However, on the back end, seriously consider a legal consult with a lawyer who does employment, business, or healthcare litigation close by, so that you can get an appropriate analysis and fully vet your options before proceeding.

We help physicians evaluate and negotiate physician contracts. If you’re considering a legal battle over your noncompete, we do this in Wisconsin, Louisiana, Texas, and Missouri. Contact us today to schedule a consultation and ensure your rights and career are safeguarded.

This blog is intended for informational purposes only and does not constitute legal advice. For personalized legal guidance, please consult a qualified attorney.

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