Most physician practice groups that hire a young physician will ask him or her to sign an employment contract that contains a restrictive covenant. Restrictive covenants contain post-employment limits on the physician employee's ability to practice medicine and compete with the former employer. They are enforced in most states even though they represent a restraint on trade because they are designed to protect the former employer's patient and referral relationships that have taken years to develop.
Restrictive covenants typically take on two forms.
The most common and acceptable restrictive covenant is a restrictive covenant that prohibits the former employee from soliciting the employer's patients, referral sources and employees. Courts typically enforce such covenants as reasonably designed to protect the employer's legitimate interests. As this type of covenant allows the physician to continue to treat the patients of the former employer, provided the physician does not solicit them, it minimizes the impact on the patients' ability to treat with the physician of their choice and allows the former employee to continue the practice of medicine that he developed during his employment.
The second type is a covenant not to compete. Under this form of restrictive covenant, the employee will be prohibited from practicing medicine within a certain geographic area and for a certain period of time. Restrictions of 10 to 15 miles in non-densely populated areas and two years have typically been found to be reasonable and enforceable by the courts. This type of covenant effectively requires the former employee to re-start his medical practice in a new location outside of the geographic area covered by the covenant.
Employers will often request that the new physician agree to both types of covenants. It is not unreasonable for the new physician to negotiate by requesting that only the anti-solicitation covenant be used.
Employers will sometimes agree to this limitation, particularly if they are eager to hire the new physician. Given what is at stake, the new physician should have counsel review the agreement and negotiate with the employer's counsel. Not only will this better protect the new employee's interest, but it will avoid direct negotiations that the new employee may find uncomfortable.
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