Considerations for Physician Non-Compete Provisions

By: Erin B. Williams and Ian P. Hennessey

When dealing with physician employment agreements, non-compete provisions are amongst the most common topics of discussion. Employee physicians, whether joining or leaving a group, are often interested in knowing whether a non-compete provision can be minimized or eliminated. Physician groups, on the other hand, are equally eager to protect their businesses interests. While physician non-compete provisions are generally enforceable under Tennessee law, there are important exceptions based on the language of the restriction and the date of the contract.

What is the current status of Tennessee law concerning physician non-competes?

Prior to 2005, a physician non-compete provision was generally accepted as enforceable so long as it protected a legitimate business interest and was considered reasonable.¹ In 2005, however, the Tennessee Supreme Court declared in the Udom case that non-compete restrictions contained in physician employment agreements were unenforceable unless otherwise specifically permitted by law.² In response to the Tennessee Supreme Court's decision, the Tennessee General Assembly enacted a law in 2007 permitting physician non-competes under limited circumstances.³ Under the 2007 legislation, physician non-compete provisions would be considered valid if they: (1) are in writing; (2) last no longer than two years after the physician's employment is terminated; and (3) either (a) are geographically limited to the greater of the county where the physician is employed or a ten mile radius of the primary practice site; or (b) there is no geographic restriction, but the physician is restricted from practicing at any facility in which the employer provided services during the physician's time of employment.

However, the 2007 legislation contained an additional limitation on physician non-compete provisions: no restriction under the statute was binding on a physician who had been employed by the employer for at least six years. Furthermore, the non-compete statute did not apply at all to physicians practicing radiology or emergency medicine.

Since becoming effective on January 1, 2008, Tenn. Code Ann. 63-1-148 has been revised three times. In 2008, the statute was revised to include radiologists. Then in 2010, the statute was amended to state that physicians could be bound by a non-compete provision for more than six years if an extension of the non-compete provision was separately negotiated, in writing, and supported by financial consideration. Finally, in 2011, the legislature amended the statute once again by completely deleting the six year provision altogether effective January 1, 2012.

Despite the flurry of revisions over the past few years, there has been very little case law interpreting and applying the law to date. However, as a general rule, Tennessee law prohibits retrospective laws which "take away or impair vested rights acquired under existing laws or create a new obligation, impose a new duty, or attach a new disability in respect of transactions or considerations already passed."⁴

Is My Non-Compete Provision Enforceable?

It mainly depends on the answers to two factors: (1) the date of the non-compete provision; and (2) the language of the non-compete provision. As previously discussed, there is very little case law interpreting Tenn. Code Ann. § 63-1-148. However, a court is likely to consider the enforceability of a non-compete provision based on the version of the statute that was in force at the time the parties entered into the contract. For example, a non-compete provision in a radiologist's employment agreement dated March 1, 2008 is not likely to be enforceable because such a provision was not permitted under the statute at the time. On the other hand, the same provision in a radiologist's employment agreement dated March 1, 2011 would be permissible. For the same reason, however, a non-compete provision is likely to be unenforceable if it is from an employment agreement entered into prior to the effective date of the statute on January 1, 2008.

The enforceability of a non-compete provision also depends on whether the language of the restriction conforms to the statute. In the Udom case, the Tennessee Supreme Court stated that physician non-competes are unenforceable except as specifically provided by statute. Therefore, if the language of the restriction is broader than the statute, the restriction will be most likely considered unenforceable. For example, if a non-compete provision restricts a physician from practicing within a 10-mile radius from all practice sites (rather than just the primary practice site) the provision is probably not enforceable.

Conclusion

As a general rule, physician non-competes are enforceable under Tennessee law. Nevertheless, there are exceptions based on both the age and the language of the agreement. Before entering into a new employment agreement, both the physician and the employing group should verify that the language of any non-compete provision strictly complies with Tenn. Code Ann. §63-1-148. A prospective physician employee, as well as the hiring group, should also verify whether the physician is subject to a non-compete agreement from his or her previous employer and determine whether the new employment would cause a breach. Keep in mind, however, that even if the physician and new employer believe the non-compete is unenforceable, litigation still may arise if the former employer believes it can be enforced. Any resulting lawsuit may include both the physician and the new employer as parties. Therefore, it is very important that both individual physician employees and physician group employers pay close attention to both current and proposed non-compete provision language in an employment contract.

Disclaimer: The information contained herein is strictly informational; it is not to be construed as legal advice.