Legal Update

April 2022

Kenneth Alan Totz, DO, JD, FACEP

To Compete, or Not to Compete, That is the Question
A Primer on Non-Compete Clauses

How many of you have blindly, willingly, or reluctantly signed an employment contract in your career, later to find out that the contract attempts to restrict (1) where you can work (2) for a certain period of time? I see a lot of hands going up out there! Unfortunately, most of our colleagues do not have an attorney or someone skilled in deciphering the legalese in our employment contracts when joining a group. Hiring an attorney to review a contract is an added expense, usually at a time in your life when the extra dollars could be used elsewhere. Beware though, of the headaches that may lie ahead if you elect the alternative to an ounce of prevention. A non-compete clause is a form of restrictive covenant that “restricts” an employee from competing with an employer for a certain period of time, in exchange for some sort of compensation (aka, consideration). Non-compete clauses can significantly curtail your practice opportunities if they are allowed to be enforced. If you are fortunate to have sound legal advice before signing a contract with one of these clauses included, you will have the opportunity to request the clause to be modified or to be removed entirely from the contract. Depending on your bargaining power and the needs of the group, this is a request most groups are willing to consider. However, if you do sign, or have signed a contract that included a non-compete clause, is it possible to limit or eliminate the enforcement of the clause? As always, the answer is, “it depends.”

Non-compete clauses are definitely enforceable in the state of Texas, but like every other state in the union, and under Federal law, there is a clear theme of favoring the mobility and free commerce of an employee or contractor. Any contract that restricts economic competition in trade or commerce will generally be deemed unlawful. There are some exceptions though…so, what determines if a non-compete clause is lawful?

A non-compete clause may be deemed lawful if it is reasonable in scope. This is where it gets a little sticky though. What is “reasonable in scope” has been the subject of much litigation in Texas. Let’s take an example of a simple ED independent contractor contract in Houston, TX. If a non-compete clause precludes a physician from working at any other freestanding ER in the city of Houston for a period of 2 years, this likely would be deemed an unreasonably restrictive scope of practice. If, however, the non-compete clause limited the employee’s employment at any freestanding ER within one mile of the contracted ED, this may very well pass the reasonable scope test in Houston. If though, we were in College Station, TX, a much smaller town than Houston, that same one mile radius, might be deemed too restrictive as it would significantly limit the ability of a physician to find freestanding employment in a smaller town. Now, to complicate matters even further, if you had proprietary information that helped establish a particular type of freestanding ED or some other unique feature, there may be more latitude to expand the geographic scope and time duration for which a particular non-compete clause can operate. Now, what happens if you intentionally or inadvertently violate a non-compete clause?

Certainly, nothing will happen if the other contracting party does not recognize the issue, doesn’t care, or feels it is too risky and/or expensive to pursue legal remedies (i.e., a lawsuit) under the existing contract. Needless to say, please contact an attorney experienced in these contractual issues to competently assist you through the matter. As you can see by the very simple examples above, the individual circumstances of the case and the contract must be thoroughly reviewed to determine the best course of action for the client. Additionally, there are plenty of defenses that can be employed, even if a valid non-compete clause exists. For example, the defense of “unclean hands” may be employed if, for example, the employer deceptively added the non-compete clause to an updated employment contract, but claimed that only the time and date of the contact had changed. In short, the courts will not assist a wrongdoer in the enforcement of a contract where they have acted in bad faith.

The offering and acceptance of any contract terms should never be taken lightly. Given the magnitude of time and money that will ultimately go into any ED employment contract, it is well worth it to spend a portion of one shift’s earnings on sound legal advice to ensure that you will be getting every benefit of the contractual bargain you had anticipated. I hope everyone is safe and well.

Kenneth Alan Totz, DO, JD, FACEP

No information within this publication should be construed as medical or legal advice. Independent medical and/or legal advice should be sought based on each individual’s particular circumstances.