American College of Physicians: Internal Medicine — Doctors for Adults ®

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This clause should give you pause before taking the job

From the April ACP Observer, copyright 2007 by the American College of Physicians.

Practice TipsRestrictive covenants, also called non-compete clauses, can be one of the most important, least understood, and potentially contentious aspects of signing an employment contract. Following termination of employment, these clauses seek to prohibit the physician from practicing medicine for a specified period of time in a specific geographical area.

The intent is to prevent departing physicians from damaging the practice by taking with them a significant number of patients on which the group's economic well-being depends and in which the practice has invested much to attract and retain. Often a companion non-solicitation clause prohibits the departing physician from actively seeking to attract patients, employees, and health plan contracts away from the former practice.

Since enforcement of restrictive covenants varies considerably from state to state, both parties should investigate enforceability in the state where the practice is located and then negotiate contract language consistent with the application of state law.

If practices choose to include a restrictive covenant in a physician's proposed employment contract, both parties should strive to achieve contract provisions that are reasonable, non-punitive, and designed only to protect the practice against legitimate harm to its patient base. If the contract initially appears excessively restrictive, consider some of the following ways in which a physician may try to negotiate less severe provisions:

  • Limit the geographic restriction to just the area around the office where the physician will actually be assigned to practice, rather than having it extend to all sites owned by the practice;
  • Reduce the radius restriction to a more reasonable distance;
  • Reduce the time restriction to no more than 1-2 years;
  • Make the covenant enforceable only if the physician leaves voluntarily or is terminated for cause by the practice.
  • Include a provision permitting the physician to "buy out" of the restrictive covenant at a fixed dollar amount, rather than face monetary penalties and/or possible court injunctions, thus avoiding the onus of contract violations and possible resulting damage to the physician's reputation.

For more information on negotiating employment contracts, including a sample contract, check out PMC's newly revised "Physician Employment Contracts."

"PMC Tips" is a regular feature on small practice management from ACP's Practice Management Center.

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