Non-Compete Clauses
The panel discussion held on January 24, 2020, delves into the implications of non-compete clauses in the medical field, exploring the contrasting goals of physician employers and employees, policy considerations, and the current state of the law in Louisiana as it pertains to non-competes. The session also examines ethical concerns and the need to strike a balance between individual patient needs, physician rights, and business interests.
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Presentation Transcript
Non-Compete Clauses January 24, 2020 Panel Members: Brent Hicks, JD Scott Keaty, JD Randy Roig, MD
Overview of Non-compete and Non-solicitation clauses
Goals of Physician Employers vs. Goals of Physician Employees
Policy Considerations Code of Medical Ethics Opinion 11.2.3.1 Competition among physicians is ethically justifiable when it is based on such factors as quality of services, skill, experience, conveniences offered to patients, fees, or credit terms. Covenants-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care. Physicians should not enter into covenants that: (a) Unreasonably restrict the right of a physician to practice medicine for a specified period of time or in a specified geographic area on termination of a contractual relationship; and (b) Do not make reasonable accommodation for patients choice of physician. Physicians in training should not be asked to sign covenants not to compete as a condition of entry into any residency or fellowship program.
Policy Considerations Louisiana Board of Medical Examiners Opinion letter issued on December 10, 2019 No authority over regulation of noncompetes, which are statutorily permissible if structured appropriately. Any changes would require action by the Louisiana Legislature. Concerned to the extent noncompetes disrupt continuity and quality of care upon separation of a physician from a practice.
Policy Considerations General Pros and Cons How can we balance the needs of individual patients and communities, a physician s right to work and the business interests of employers?
Current state of the law in Louisiana
La. R.S. 23:921 Restraint of business prohibited; restraint on forum prohibited; competing business; contracts against engaging in; provisions for A.(1) Every contract or agreement, or provision thereof, by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, except as provided in this Section, shall be null and void. However, every contract or agreement, or provision thereof, which meets the exceptions as provided in this Section, shall be enforceable. * * C. Any person, including a corporation and the individual shareholders of such corporation, who is employed as an agent, servant, or employee may agree with his employer to refrain from carrying on or engaging in a business similar to that of the employer and/or from soliciting customers of the employer within a specified parish or parishes, municipality or municipalities, or parts thereof, so long as the employer carries on a like business therein, not to exceed a period of two years from termination of employment. An independent contractor, whose work is performed pursuant to a written contract, may enter into an agreement to refrain from carrying on or engaging in a business similar to the business of the person with whom the independent contractor has contracted, on the same basis as if the independent contractor were an employee, for a period not to exceed two years from the date of the last work performed under the written contract. Exception: There shall be no contract or agreement, or provision entered into by an automobile salesman and his employer restraining him from selling automobiles. * 8
Application to Corporations J. A corporation and the individual shareholders of such corporation may agree that such shareholders will refrain from carrying on or engaging in a business similar to that of the corporation and from soliciting customers of the corporation within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the corporation carries on a similar business therein, not to exceed a period of two years from the date such shareholder ceases to be a shareholder of the corporation. 9
Application to Partnerships K. A partnership and the individual partners of such partnership may agree that such partners will refrain from carrying on or engaging in a business similar to that of the partnership and from soliciting customers of the partnership within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the partnership carries on a similar business therein, not to exceed a period of two years from the date such partner ceases to be a partner. 10
Application to Limited Liability Companies L. A limited liability company and the individual members of such limited liability company may agree that such members will refrain from carrying on or engaging in a business similar to that of the limited liability company and from soliciting customers of the limited liability company within a specified parish or parishes, municipality or municipalities, or parts thereof, for as long as the limited liability company carries on a similar business therein, not to exceed a period of two years from the date such member ceases to be a member. 11
Damages Any agreement covered shall be considered an obligation not to do, and failure to perform may entitle the obligee to recover damages for the loss sustained and the profit of which he has been deprived. Upon proof of the obligor's failure to perform, and without the necessity of proving irreparable injury, a court of competent jurisdiction shall order injunctive relief enforcing the terms of the agreement. Any agreement shall be null and void if it is determined that members of the agreement were engaged in ultra vires acts. 12
Senate Bill 177 Exception: Notwithstanding any provision herein to the contrary, no contract, agreement or provision thereof shall be enforceable to restrict any physician, advanced practice registered nurse, nurse practitioner, or physician assistant from practicing, upon termination of employment or independent contractor agreement, who has practiced in their field for a five-year continuous period with the same employer or affiliate in the same community while subject to a noncompete or nonsolicitation agreement. "Community" means the same geographical area of prohibition as contained in that particular physician noncompete or nonsolicitation contract, agreement or provision thereof.
Trends across the nation The law on restrictive covenants varies significantly from state to state, and is governed by the common law, statutes, or a combination of both. The courts will examine the agreement under the common law governing contracts, generally upholding agreements that are reasonable under the circumstances.
Prohibition on Enforcement of Noncompete Agreements California, Oklahoma, Rhode Island and North Dakota have historically taken a hostile approach toward noncompete agreements, Massachusetts, Missouri and Oregon have recently proposed similarly restrictive legislation. Colorado, although not as strict as California, also prohibits noncompete agreements unless they are related to the purchase or sale of a business, the protection of trade secrets, the recovery of training expenses for individuals employed for less than two years, or executive employees or their professional staff. Georgia has historically disfavored noncompete agreements, however the Georgia Restrictive Covenants Act, passed in May 2011, represents a shift toward a more employer-friendly policy. This statute allows for judicial modification of an overly broad covenant and permits courts to consider non-solicitation agreements and noncompete agreements separately, with the ability to enforce one regardless of the enforceability of the other.
Industry-Specific Prohibitions on Noncompete Agreements Although permitting noncompete agreements generally, some states have passed legislation that prohibits noncompetes in certain industries where free competition is deemed to be in the public interest. Rhode Island, West Virginia and Connecticut have all enacted legislation targeting the enforcement of noncompete agreements for physicians, ranging from complete prohibition to less severe limitations so that patients are free to seek their health care professional of choice.
General thoughts on non-compete clauses in Louisiana.
Examples Enforceable or not?
Paradigm Health System, L.L.C. v. Faust 2016-1276 (La.App. 1 Cir. 4/12/17), 218 So.3d 1068 In this case the Court decided whether the following clause was enforceable. Physician is not allowed to engage in the practice of medicine or render any medical services to any business similar to those services provided by Employer, located in the Louisiana Parishes of St. Tammany, Jefferson (exception of city of Kenner, and Westbank) and Tangipahoa. The list of parishes and locations shall be expanded if the Employer opens new offices in additional locates in which case [this section] shall apply to the new Employer offices. What do you think?
Cardiovascular Institute of the South v. Abel 2014-1268 (La.App. 1 Cir. 3/9/15), 2015 WL 1019500 In this case the Court decided whether the following clause was enforceable. Upon the expiration of this Agreement or termination of the Agreement for any reason whatsoever, Physician agrees, for a period of two (2) years following his last day of employment with Employer, not to carry on or engage in the business of the practice of medicine in the subspecialty of cardiology in the Parishes of Acadia, Evangeline, Lafayette, St. Landry, St. Martin, St. Mary, Iberia, Vermillion, Terrebonne, Lafourche, and East Baton Rouge. This covenant not to compete shall be in force and effect in each listed Parish so long as CIS or any physician employed by CIS engages in the practice of medicine in the sub- specialty of cardiology. What do you think?
Kimball v. Anesthesia Specialists of Baton Rouge 2000-1954 (La.App. 1 Cir. 9/28/01), 809 So.2d 405 In this case the Court decided whether the following clause was enforceable. Upon the termination of this Agreement, for any reason whatsoever, Physician agrees anesthesiology in any health care facility regularly serviced by the Corporation during the term of this Agreement. This covenant not to compete shall be in full force and effect for a period of two (2) years commencing on the date this Agreement is terminated. not to practice What do you think?
Medivision, Inc. v. Germer 617 So.2d 69 (La.App. 4 Cir. 1993) In this case the Court decided whether the following clause was enforceable. The non-compete clause in a medical services agreement prevented Employee from providing ophthalmological services at any location within ten miles of any office of the [eye care] Center existing during the term of this agreement. In the preamble to the Medical Service Agreement, the term Center is defined as an eye care center currently located at 3434 Houma Boulevard, Metairie, Louisiana (collectively with the Meadowcrest Office [located in Gretna, Louisiana]) and any future additional offices in the Greater New Orleans Area. What do you think?
All-American Healthcare, L.L.C. and Nelson J. Curtis, III, D.C. v. Benjamin Dichiara, D.C. 18-432 (La.App. 5 Cir. 12/17/18), 263 So.3d 922 In this case the Court decided whether the following clause was enforceable. For the duration of the Term and for 24 months thereafter, the Professional (1) will not become employed by, or own or control any interest in, or act as an officer, director, consultant or adviser, to any person, firm, partnership, company, or corporation carrying on or engaged in a business in Tangipahoa Parish, St. Tammy Parish, Livingston Parish, Jefferson Parish, Orleans Parish, Washington Parish, and St. Bernard Parish similar to that of The Practice and (2) agrees not to solicit, or contact in any manner that could reasonably be construed as a solicitation, either directly or through an Affiliate, any employee of The Practice or its Affiliates for the purpose of encouraging such employee to leave or terminate his employment with The Practice or its Affiliates. What do you think?
Causin, LLC v. Pace Safety Consultants, LLC 2018-0706 (La. App. 4 Cir. 1/30/19) In this case the Court decided whether the following clause was enforceable. [T]he Employee agrees not to compete with Company for 2 years following termination within the specific parishes in Louisiana identified on Exhibit A and further recognizes that from time to time, the Company's business may expand to other parishes within Louisiana and/or other counties or municipalities in other states and Employee agrees that Company may amend Exhibit A and append it to this agreement with the same force and effect as the original Exhibit A. Employee agrees that if the Company provides him with an amendment to Exhibit A that it will represent as fact that the Company does business in all of the geographical areas identified in such an exhibit unless the Employee provides the Company with written notice disputing that fact within seven days of his receipt of the amendment. What do you think?
