Restrictive Covenants in Employment Contracts: What They Mean For You

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Unless you own a private practice, almost every physician will have to sign an employment contract at some point in their career. And those contracts include all sorts of confusing language, legal jargon, and specific terms.

Physician contracts include details on salary, benefits, and the responsibilities of the position. They detail when you will work, when you have to be on call, and any administrative duties that you are responsible for handling. More often than not, they also include restrictive covenants.

Physicians need to be aware of restrictive covenants and know how they can affect them. If you’re getting ready to sign a new contract with a hospital or healthcare system, you’ll need to know what to look for and how to protect your interests.

Here’s what you need to know about restrictive covenants in physician employment contracts and what they mean for you.

 


What are Restrictive Covenants?

Restrictive covenants impose restrictions upon you as an employee as a way to protect the legitimate business interests of the employer. These are common in employment agreements and contracts in a variety of industries, including medicine and healthcare.

There are a variety of restrictive covenants that are common in physician contracts. They include non-compete clauses, geographical restrictions, protection of confidential information, and non-solicitation agreements. The more restrictive covenants your contract includes, the harder it may be to find work when you leave your current employer.

The U.S. Supreme Court interprets Article IV of the Constitution as giving all citizens the right to travel. They also side with an individual’s right to practice their trade or profession.

Nine states have near or total bans on restrictive covenants, spurred, in part, by the Supreme Court’s interpretation. However, in some places, they are enforceable through state laws. Where you live and practice medicine can have a significant effect on the enforceability of the restrictions your employer may impose on you.

It’s important to have an understanding of restrictive covenants while you’re still in residency. They are common for both doctors and dentists. By knowing what they’re all about, you’ll be able to better protect yourself when it’s time to sign your first employment contract.

Related: What to Expect for Your First Physician Contract Review


Why Employers Include Restrictive Covenants in Physician Contracts

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As a physician, your primary goal may be patient care, but that’s not the only goal of the hospital or healthcare system you work for. Hospitals and large health groups are businesses. They may do life-saving work, but, like any business, they exist to make money.

Restrictive covenants are a way for employers and hospitals to protect their own interests, not yours. These restrictions are carefully worded and included in contracts for a few different reasons.

Such covenants can help the employer retain patients and key relationships. They can protect the employer’s financial interests. They can prevent physicians from taking patients with them when they leave.

They may also prevent you from setting up your own practice or conducting research in nearby facilities.

In no way do they benefit the physician or employee. They exist only to benefit the employer.


Different Types of Restrictive Covenants

Physician contracts may include one, two, or several restrictive covenants. And there are a variety of common ones that hospitals and healthcare systems rely on to protect their business.

Here are the four most common restrictive covenants and what you need to know about them:

Non-Compete

The non-compete clause is the most common type. If you see this term in your contract, it usually means that you are not allowed to work for anyone else while you work for this employer.

It’s easy to understand why employers use this one so frequently.

The non-compete is a way for your employer to ensure that you will be loyal to them. They want your goals to be their goals.

This clause restricts you from working for other practices or other medical systems at the same time. It ensures that your entire focus will be on their hospital, their patients, and their interests.

The non-compete clause is very common in contracts for hospitals and large medical groups. However, it’s more common in some specialties than others.

A cardiologist may have a loyal group of patients who want to follow their physician wherever he or she goes. Obstetricians, internists, and neurologists also fall into this same camp. Your patients will probably be willing to see you wherever you work. Physicians in these specialties can expect to see the non-compete clause in their contract.

High-demand and unique specialties, on the other hand, might not be subject to non-compete agreements. When a specialization is rare within a geographic location, public policies that protect patient rights often override such clauses.

There are other specialties that non-compete clauses may not apply to. Take, for instance, hospitalists — they don’t have their own specific patients or rely on patients to see them for continuing treatment.

Geographic Limitations

 

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Your patients may be loyal, but if you move from New York to Oregon, they probably won’t fly across the country to see you. But if you transfer to a hospital that’s only a few miles away, they likely will.

For this reason, many physician contracts prohibit you from working within a radius of X miles for a specified period of time.

Geographic restrictions can have a significant impact on your career, so be extremely cautious if you see this clause in your contract. If your contract says you can’t practice within 50 miles for one year, you could find yourself in a precarious situation.

Depending on the stipulations set forth in your contract, you could be looking at a lengthy commute or having to move to a whole new town.

Sometimes, this restrictive covenant works in conjunction with a termination clause. Depending on how it’s worded, this restriction might go into effect for ANY reason. In some cases, it may only go into effect if you’re terminated with cause.

Non-Solicitation

There isn’t an employer on earth who would be happy if you left them, went to work for a competitor, and took your clients/patients with you to benefit your new company. Hospitals and healthcare systems are no different.

Many physician contracts include a non-solicitation agreement. These usually say that you cannot take your patients with you if you leave. Those agreements also typically stipulate that you cannot recruit other employees to move to your next job with you. They may also prohibit you from soliciting referrals from primary care physicians.

This can have a huge impact on the way a physician practices medicine. Many physicians are dedicated to patient care and often build years or decades-long patient relationships.

Not being allowed to take that loyal following with you means you’ll need to start from scratch. You’ll need to build a new roster of patients that you don’t know and that don’t know you.

There are, however, some exceptions to this provision.

Non-solicitation restrictions have their limits. They prevent you from trying to convince or coerce patients to move with you to your new hospital or medical practice. But they don’t restrict the right of a physician to retain patients that seek them out on their own.

You can still advertise and employ general marketing strategies to drum up new business. If your old patients choose to follow you, they may. But you might not have access to their medical records.

Non-solicitation agreements can be tricky business, including when it comes to referral sources. Let’s say you have a handful of PCPs that send patients your way through referrals. You cannot ask those PCPs to continue to refer patients to you when you leave your employer, but if they choose to do so on their own, they may.

Without-Cause Termination 

It’s important to be aware of the potential pitfalls of all restrictive covenants. But the one that can have the most immediate and damaging effect on your career is the without-cause termination of employment clause.

If your contract includes a without-cause termination agreement, here’s what you need to know:

Without-cause termination means that you can be fired or removed from your position for any reason or no reason at all. You don’t have to break any rules or violate your contract to be removed from your position. Your employer has the sole discretion to let you go at any time.

If your contract includes this restrictive covenant, make sure it includes a few specific details. Do not sign that contract unless it specifies how many days in advance you need to be notified of your termination.

But here’s where it gets really tricky (and why you need a contract review specialist to look at your contract before you sign it).

Let’s say your contract includes a without-cause termination agreement. It might also include a non-competition clause that says you can’t work within a twenty-mile radius of the former employer for two years. In order to not violate your non-compete clause, you’ll need your without-cause termination agreement to provide you with plenty of advanced notice.

No one wants to find themselves in a situation where the employment relationship ends at a moment’s notice. That can be devastating in itself. But being terminated AND being prevented from practicing within your geographic area can be even more consequential to your practice of medicine.


Leverage Your Experience to Eliminate Restrictive Covenants

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Like all elements in your contract, restrictive covenants are negotiable.

Restrictive covenants exist to protect the legitimate business interest of the employer. But you may be able to negotiate new ones, as long as they still provide some benefit to the employer.

For example, it’s important to know what triggers those restrictive covenants to go into effect. Ideally, you only want them to go into effect if you are terminated with cause.

If a hospital hires you and then sees a decline in patient volume, they may have to let you go. But a situation like this might not be your fault. In this scenario, they may terminate you for no fault of your own, so you shouldn’t be penalized or prevented from practicing elsewhere.

There could also be circumstances where your hospital no longer provides the services you specialize in. In that situation, your non-compete should not apply.

For example, if you are an obstetrician and your hospital no longer offers OB services, it is not your fault. Make sure your restrictive covenants have limitations that protect you in unusual occurrences like these.

With experience and strong negotiation skills, it is possible to make your covenants a bit less restrictive.

Depending on the state in which you live, your restrictive covenants may or may not even be enforceable, depending upon the public’s interest. But it’s always better to make them as palatable as possible.

Fail to do so, and you could find yourself having to pay legal expenses to have your case heard in court.


How to Protect Yourself From Restrictive Covenants

The American Medical Association (AMA) says in their code of medical ethics that:

“Covenants-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care.”

They recommend that physicians be cautious of restrictive agreements that unreasonably restrict:

  • Periods of time
  • Geographic scope
  • Reasonable accommodation of patient choices

The AMA also cautions physicians in training not to sign non-competition contracts as a condition of residency or fellowship programs.

But contracts are complicated. How do you protect yourself beyond these general guidelines?

The best way to protect yourself from restrictive covenants is to hire a contract review specialist. They will review all of the details of your contract before you sign it.

A contract review specialist will know if your restrictive covenants are legitimate and common in your state. If they are excessive, they will know.

In addition, a contract review specialist will be able to identify if anything is missing from your contract. For example, non-competes and geographical limitations should only go into effect for with-cause termination. A contract specialist will easily be able to identify if those clauses and terms are missing.

Contract review specialists will do a lot more than just look at your restrictive covenants. They’ll look at all aspects of your physician employment agreement, including salary, benefits, and on-call responsibilities. Don’t make the mistake of signing a contract without having a professional review it for you.

Once you sign and submit it, it will be too late to negotiate terms and make changes.

Related: How to Resolve a Physician Contract Dispute


Restrictive covenants are common in employment contracts, especially physician contracts. You must understand what they are and know how they affect your career in the future.

Look out for physician non-compete clauses, geographic limitations, non-solicitation agreements, and without-cause termination agreements. One of these alone can have a short-term effect on your career, but more than one can be detrimental and cause your career to suffer long-term damage.

The next time you’re presented with a physician’s employment contract, hire a contract review specialist to look at it for you. A review specialist will be able to help you negotiate better terms. Their job is to protect your financial and professional interests in the long term.

Contact Physicians Thrive to connect with a contract review specialist today.

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