ALP: What is the status of non-competition agreements in health care?

October 2004

Non-competition clauses or agreements restrict physicians from leaving their current employment and starting an independent practice nearby. A typical non-competition agreement will restrict that physician from setting up a practice within 10 – 20 miles for a period of 1 – 3 years.

The concept is based on the idea that if a new physician joins a group, builds up a practice, and then decides to leave the practice, they should not be able to take that practice from the group that employed them while they were building it up. Non-competition clauses will force the departing physician to move to a location that is far enough away, that they will need to build their practice anew, at their own expense.

Courts in Ohio have generally enforced non-competition clauses as long as they are reasonable. Clauses that are unreasonable in duration, for example 10-years in length, have not been enforced. Similarly, clauses of extreme geographical distance or coverage have not been enforced, for example 100 miles.

New Federal regulations (known as Stark II, Phase II, effective July 26, 2004, prohibit the use of non-competition clauses in contracts for the employment of newly recruited physicians. Interestingly, the new regulations did not include a grandfather clause. Therefore, the new regulations affect agreements that were in place before the effective date as well as those that are written after it. This means that physician-recruiting agreements will need to be amended in response to the new law if they include non-competition agreements.

The law effecting non-competition agreements is constantly changing. Also, it is sometimes enforced differently depending on the locality involved and their need to retain physicians in the community.