How to Negotiate a Non-Compete Clause in an Employment Contract: What Every Physician Needs to Know

Note: At Offcall, one of the most frequent concerns we hear when it comes to physician contracts is dealing with noncompete clauses. To that end, we’re collecting the country’s largest data set on how noncompete clauses impact job satisfaction in medicine. If you haven’t already, be sure to sign up for Offcall and fill out our anonymous compensation survey in less than 2 mins to help us build our data set.

Additionally, we wanted to provide a helpful resource on how to navigate a noncompete clause if you have one in your contract. So we reached out to Michael Johnson, a physician employment attorney who runs one of the country’s leading physician employment law firms and is an expert on restrictive covenants and how to negotiate them. Michael was also recently a guest on our podcast How I Doctor hosted by Offcall's co-founder Dr. Graham Walker, which you can listen to here.

This blog post is adapted from an article which originally appeared on Michael Johnson Legal, which you can also read here.

At Michael Johnson Legal, we work closely with physicians facing employment contract negotiations and enforcement questions, including noncompete clauses. When it comes to noncompete clauses, many physicians try to negotiate the restrictive covenants, including the noncompete, in a YES or NO way. The physician asks the employer to waive it… the employer says nope… then the physician signs the contract.

But this is NOT the way to negotiate a restrictive covenant! As a physician, what you need to understand is that employers want to be able to tell physicians that they make everyone sign noncompetes. But what they often leave out is that they are sometimes willing to modify the noncompete. There are tons of options to reduce it in a way that will improve your exit strategy! Here’s what you need to know.

What does a noncompete clause look like?

Here is a common draft of a noncompete clause for reference.

Section 10.2 NONCOMPETITION: During Physician’s employment and for a period of two (2) years after termination for any reason, Physician shall not practice medicine or otherwise participate in the business of the provision of healthcare services within thirty (30) radial miles of Employer’s facilities. Physician shall be relieved of compliance with this section upon payment of Physician’s last 12 months of total compensation earned.

At the federal level, there have been efforts by the Federal Trade Commission to make noncompete clauses unenforceable for all employees across the country. However, those efforts have not come to fruition, and future efforts are uncertain. For now, this issue is primarily left to each individual state to decide.

The key points in a non-compete clause highlighted in this example include that it applies:

1) During employment (i.e. for any approved moonlighting positions)

2) Upon termination regardless of the reason for termination, even if the employer terminates without cause;

3) Regardless of whether the employee is in a leadership position;

4) Regardless of how long employment has lasted, making it equally enforceable even if the employee has been with the employer for 5 minutes or 20 years;

5) Regardless of whether the physician is inpatient only or doesn’t have a patient panel;

6) To any and all practice of medicine, and is not limited to only the nature of work performed for the employer;

7) For two years post-employment;

8) For thirty miles from every employer facility, meaning there might be multiple 30-mile bubbles;

9) Unless the physician pays the employer a buyout of 12 months of total compensation; and

10) Regardless of the personal impact on the physician.

Requesting changes to the location, geography and time of the noncompete.

While many physicians assume noncompete clauses are set it stone, factors like location, geography, and time are absolutely factors which you can negotiate. For example, you can:

- Ask for the noncompete to apply to only ONE location!

- Scan the market and see if reducing the geography by a little bit will open up some good options. Does 20 miles instead of 30 miles help improve your exit strategy?

- 24 months may be a long time, but could you use a moonlighting gig or a short term locum strategy to help you survive a 12 month noncompete? Negotiating an open moonlighting clause and keeping a pulse on locum opportunities can help a ton with improving your exit strategy.

Requesting creative carve outs within the protective bubble.

Additionally, another area that you can typically negotiate includes asking for carve outs within the protective bubble. Consider these facts:

- The VA! What employer really competes with the VA?!? VA positions can be quite nice actually.

- An academic institution. If you are primarily teaching residents and doing research, are you competing?

- A small 1-2 physician practice. MegaHealth may not be as worried about this, particularly if you maintain medical staff privileges and take call at the hospital.

- Different payors, such as all cash vs. primarily DHS.

- Buyout. The noncompete is unenforceable if I pay $X. Most buyout offers are unreasonably high, but we have seen a few recently in the 5-figure range that could be worth the investment.

- Back out of a subspecialty to be a generalist. For example, an addiction psychiatrist backing out to do adult outpatient, or an interventional pain-anesthesia backing out into anesthesia.

Requesting restrictions for when the noncompete applies

You can absolutely also request restrictions for when the noncompete applies. This is another area that most physicians assume is non-negotiable, but this is not true! For example, you can:

- Make it severely reduced or unenforceable if the employer terminates WITHOUT cause or if you terminate the contract WITH cause.

- Ask for the addition of sunrise clauses (If I leave in less than one year, the noncompete only applies for the length of the employment).

- Ask for the addition of sunset clauses (if I stay for X years, the noncompete is reduced by Y). Louisiana's noncompete law was recently changed to incorporate a 3-year sunset for primary care and a 5-year sunset for specialists, so there is growing precedent for this!

The Importance of Timing Your Negotiation Before You Sign the Contract

These are just a few examples of the kinds of things that we at Michael Johnson Legal help negotiate for our clients.

If you remember one thing from this entire article, the most important takeaway should be this: Your contract leverage to modify the noncompete is strongest before you sign the contract and when the competition for physicians in your specialty is heavy.

So, if you’re currently receiving offers or negotiating your contract, the time to request modifications to your noncompete clause is now. A simple YES or NO is not rarely the best way to negotiate.

Hopefully, this article gave you some creative ideas to make your next best option a little better.

If you need legal help for a current negotiation or want to talk about any of these ideas further, please reach out! We’re on IG @PhysicianContracts or you can reach our team directly at MichaelJohnsonLegal.com.