Like many physicians, Greg Davis, MD, MPH, signed a noncompete clause when he accepted his first job as an otolaryngologist.
Dr. Davis joined the faculty at the medical college he’d attended, conducting research, educating medical students, and treating patients with nasal and sinus conditions. The noncompete clause, which restricted his ability to practice medicine within 30 miles of his employer for two years, was a non-issue for more than a decade—that is, until Dr. Davis decided to leave academic medicine.
He knew that other physicians had challenged their noncompete clauses in court and lost, even after spending significant sums. So, Dr. Davis hired a lawyer, who proposed a monetary buyout to his employer. Their answer was “the best backhanded compliment I’ve ever had,” Dr. Davis said. “They said I was too valuable to the institution to offer any monetary buyout.”
Dr. Davis is just one of millions of physicians whose careers—and lives—are limited by noncompete clauses, a type of contract covenant that may also be called a “restrictive covenant” or “non-interference” clause. According to the American Medical Association (AMA), “unfair noncompete clauses are extensive in healthcare, affecting between 37% and 45% of physicians.”
The AMA isn’t the only organization that considers noncompete clauses problematic. In January 2023, the U.S. Federal Trade Commission (FTC) issued a plan to ban noncompete clauses, which they describe as “a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses.” The press release announcing the proposed new rule specifically mentions “doctors” alongside hairstylists, warehouse employees, and business executives as workers affected by noncompete clauses.
In May 2023, the National Labor Relations Board (NLRB) released a memo stating that “overbroad noncompete agreements are unlawful,” while allowing that they “could be lawful if the provisions clearly restrict only individuals’ managerial or ownership in a competing business….” The NLRB memo doesn’t have the force of law, but according to an article written by Morgan Lewis, a law firm that specializes in corporate contracts and has more than 30 offices worldwide, it serves notice that noncompete provisions may violate the National Labor Relations Act unless narrowly tailored to special circumstances.
What impact will these actions have on otolaryngologists? It’s too soon to say. The FTC is currently accepting public comments on its proposed ban and won’t issue a final decision until April 2024 at the earliest. Even then, it’s expected that noncompete clauses will occupy murky legal ground for years to come.
“My best advice for all physicians is, don’t hold your breath on the FTC to save you,” said Peter J. Glennon, Esq., chief executive officer of The Glennon Law Firm and author of Am I Stuck in This Practice: A Guide on Non-Compete Agreements for Doctors, Nurses, Dentists, And Other Health Care Providers. “Negotiate away or limit your noncompete now if you can.”
History of Noncompete Clauses in American Medicine
Noncompete agreements have been part of the U.S. business landscape for more than 100 years, Glennon said. Historically, they’ve been used to protect business owners’ investments.
“You don’t want to have an employee take your intellectual property or client lists and then walk across the street, set up a business, and compete against you,” said Kyle Claussen, an attorney and chief executive officer of Resolve, a company dedicated to physician contract review and negotiation.
I think that any ban by the FTC would probably have the greatest impact in the healthcare industry. You could set up a dual world in which you can have noncompetes in nonprofit systems but not in for-profit clinics and hospitals.
—Peter J. Glennon, Esq
It isn’t clear when the first physician noncompete agreement was signed, but restrictive clauses are now “very prevalent in healthcare employment,” Glennon said, affecting doctors, nurse practitioners, and physician assistants, among others. These clauses typically limit healthcare professionals’ ability to work in a particular geographic area and/or line of work for a defined period after terminating an employment contract.
Physician noncompete clauses are more common today than in years past because physicians are now more likely to be employees. According to a study commissioned by the Physicians Advocacy Institute, three-quarters (74%) of physicians in the United States were employed by a hospital, health system, or corporate entity by January 2022 (COVID-19’s Impact on Acquisitions of Physician Practices and Physician Employment 2019-2020; www.physiciansadvocacyinstitute.org).
Because physician noncompete clauses restrict where, when, and how doctors can practice, they also affect public health. That’s one reason some states have banned or limited physician noncompete agreements. By the end of 2021, 12 states had deemed noncompete agreements unenforceable or against public policy (JAMA Health Forum. 2021; doi:10.1001/jamahealthforum.2021.4018). Four states (California, Minnesota, North Dakota, and Oklahoma) have banned noncompetes completely, according to the Society for Human Resource Management (Shepherd L. States Outlaw Noncompete Agreements. Society for Human Resource Management. July 10, 2023), and, in 2023, the New York state legislature passed legislation that would ban noncompetes (Shepherd L. States Outlaw Noncompete Agreements. Society for Human Resource Management. July 10, 2023), although as of the time of this writing, the governor of New York has yet to sign the legislation (Wood JM. New York State’s non-compete legislation still awaits governor’s signature. NY Daily Record. November 27, 2023).
Current Noncompete Landscape for Otolaryngologists
Shortly after the FTC announced its plan to ban noncompete clauses, the American Academy of Otolaryngology–Head and Neck Surgery Private Practice Study Group (PPSG) surveyed its members to learn more about the extent and impact of restrictive clauses in otolaryngology practices. Approximately half of surveyed members (50.6%) personally have a noncompete, while 49.4% do not. Almost 60% of physicians younger than age 45 are restricted by a noncompete clause, compared to only 45% of physicians aged 46 or older (Dubin MG, et al. Survey: Employee Contract Non-Compete Clauses. AAO-HNS Bulletin. February 20, 2023).
One of the most notable findings of the survey is that many otolaryngologists “don’t know or remember what’s in their noncompete,” said Marc G. Dubin, MD, managing partner of The Centers for Advanced ENT Care in Md./DC/Va., and past PPSG chair. “A lot of people don’t know if they can buy themselves out of their contracts.”
Perhaps unsurprisingly, younger, early career otolaryngologists are significantly more likely to oppose the use of noncompete agreements than older otolaryngologists. Seven out of 10 respondents aged 45 or younger do not support the use of noncompete clauses, while older physicians are nearly evenly divided (51.5% vs. 48.5%) in opposition or support of restrictive clauses.
Attorneys, physicians, and business owners nationwide are considering the impact of a potential ban on noncompetes, even as they debate the legal right of the FTC to impose a broad ban.
One of the primary problems with a noncompete agreement is that you sign it and are stuck. They control where you live, where your significant other lives and works, and where your kids go to school because you can’t just move if your noncompete is significant.
—Greg Davis, MD, MPH
“I think that any ban by the FTC would probably have the greatest impact in the healthcare industry,” Glennon said, noting that healthcare includes both not-for-profit and for-profit entities, and that the FTC does not have jurisdiction over not-for-profit businesses. “You could set up a dual world in which you can have noncompetes in nonprofit systems but not in for-profit clinics and hospitals.”
Negotiating a Noncompete
Although the legality and enforceability of noncomplete clauses are currently open questions, one thing is crystal clear: Noncompete clauses can have a dramatic impact on physicians’ lives. That’s why it’s important to carefully read and consider all work contracts.
“The best time to consider your noncompete is before you sign it,” Glennon said. “That’s when you can negotiate.” Pay attention to these four common components:
Scope. What are you not allowed to do after terminating your contract with your employer? Many physician noncompete clauses (including Dr. Davis’s) broadly restrict “the practice of medicine.” Narrowing the scope can increase your opportunities while also protecting your employer’s interest. If you accept a job as a pediatric otolaryngologist, it may be reasonable to limit the noncompete clause to pediatric otolaryngology—which would allow you to work in adult otolaryngology upon your exit from that practice. Alternately, the scope could be limited to inpatient or outpatient work, instead of both.
Geographical area. What areas are off limits to you? According to the PPSG survey, many otolaryngologists are restricted from practicing within a 15- to 25-mile radius, although there’s broad variability. (After all, a five-mile radius in Manhattan includes many more potential patients than a five-mile radius in Wyoming.) Generally speaking, the restricted geographic area is usually larger in less densely populated areas and significantly smaller in densely populated urban areas.
Check the wording as well. Are you restricted from working within 20 miles of your primary work site, or are you not allowed to work within 20 miles of any location operated by your employer, which could cover a large geographic area?
Time limit. The most cited duration for otolaryngologist noncompete clauses is 18 months to two years, according to the PPSG survey. “Anything beyond two years falls outside the norm,” said Claussen, who has helped thousands of physicians to negotiate their contracts. A shorter period is typically more advantageous for the physician.
Exceptions and exit options. How can you get out of your noncompete? Do you have the option to buy out your contract? Nineteen percent of otolaryngologists who answered the PPSG survey and are bound by a noncompete did not know the answer to this question. Your contract should also address whether the noncompete agreement applies if you’re terminated without cause, if the practice is purchased by another health system or private equity firm, or your employer is in breach of contract. (Ideally, it should not, but most default noncompete clauses don’t specify exceptions.)
A knowledgeable attorney with experience in the healthcare industry and employment law can help you understand your contract and suggest options. “Don’t go to your cousin who does family law. Lawyers specialize just like doctors do,” Claussen said. (Otolaryngologists can receive discounted services via Resolve, the exclusive contract review partner of the American Academy of Otolaryngology.)
“Almost every employer will say, ‘This is our standard contract. Everyone signs it,’” Claussen said. “But most will make adjustments, particularly if [those adjustments] are based on industry standards. If you go in with reasonable requests, you’re usually in a pretty good spot.”
Depending on the contract and your personal priorities, you may ask to tighten the scope of the noncompete and/or limit the geographical area and time frame. A buyout clause can ease the financial pain an employer may experience upon your exit while giving you the opportunity to earn income after your separation.
Physicians who have already signed a noncompete should periodically review their contract as well. When your contract and compensation are up for renegotiation, take another look at your noncompete clause. “Things like noncompetes may change based on state law or industry norms,” Claussen said. An experienced attorney can help you ensure that yours is in line with those norms and that it adequately protects your needs and interests as well.
If you’re bound by a noncompete clause and want—or need—to leave your current position, consult an experienced attorney, as Dr. Davis did. They can advise you of your legal rights, help you strategize, and, in some cases, negotiate with your employer on your behalf. Litigation is another option, although that may not be economically feasible.
Dr. Davis chose not to challenge his noncompete clause in court. Instead, he explored professional opportunities outside of the 30-mile radius indicated in his contract and joined a practice 33 miles away.
“I was nervous for a while, because I couldn’t get an official ruling to give to my employer on whether or not my new site of practice was within the radius,” he said, noting that he lived with that low-level anxiety until two years passed without any legal action from his original employer.
Dr. Davis loves his current job and is grateful he didn’t have to uproot his family to move forward in his career. Not all physicians are so lucky.
“One of the primary problems with a noncompete agreement is that you sign it and are stuck,” he said. “They control where you live, where your significant other lives and works, and where your kids go to school because you can’t just move if your noncompete is significant.”
Jennifer Fink is a freelance medical writer based in Wisconsin.