Healthcare Noncompete Laws Get a Checkup in Four States and the District of Columbia
As readers of this blog likely know, many states have entirely different statutory schemes for noncompetes in the healthcare industry. Indeed, while 47 states generally permit noncompetes, more than a dozen expressly prohibit or limit them in certain sectors of the healthcare industry – typically for patient-facing clinicians.
For example, in Massachusetts, noncompetes are not permissible in “[a]ny contract or agreement which creates or establishes the terms of a partnership, employment, or any other form of professional relationship with a physician registered to practice medicine . . . , which includes any restriction of the right of such physician to practice medicine in any geographic area for any period of time after the termination of such partnership, employment or professional relationship.” The same restriction applies to Massachusetts nurses, psychologists, and social workers.
At least a dozen other states similarly place statutory restrictions and/or conditions on the use of noncompetes with certain healthcare workers, again typically clinicians, including: Colorado (physicians); Connecticut (physicians and home healthcare workers); Delaware (physicians); Florida (physicians); Indiana (physicians); New Hampshire (physicians and podiatrists); New Mexico (dentists, osteopathic physicians, physicians, podiatrists, certified registered nurse anesthetists, certified nurse practitioners, certified nurse-midwives); Rhode Island (physicians); South Dakota (physicians, physician assistants, certified nurse practitioners, nurse-midwifes, certified registered nurse anesthetist, registered nurses, and licensed practical nurses); Tennessee (physicians (except emergency medical specialists), podiatrists, chiropractors, dentists, optometrists, osteopathic physicians, and psychologists); Texas (physicians); and West Virginia (physicians).
This issue has been even more at the forefront as a result of the COVID-19 pandemic. According to our friend Russell Beck, in 2022 alone, there already have been no fewer than 98 noncompete bills proposed in at least 29 state legislatures across the country, with some 30 of them involving the healthcare industry. For example, there are bills currently pending in Connecticut, Louisiana, Minnesota, and Missouri that would prohibit the use of noncompetes with many physicians, a bill pending in Florida that would require any physician restrictive covenants to include an option to buy out the restrictive covenant, and a bill pending in Massachusetts that would prohibit the use of noncompetes with physician assistants.
Three other states passed such legislation recently addressing the use of noncompetes by temporary staffing and placement agencies for healthcare workers (often referred to as “locum tenens” agencies). Specifically, Illinois passed a law that prohibits “nurse agencies . . . from entering into covenants not to compete with nurses and certified nurse aides.” Similarly, Iowa passed a law that prohibits healthcare employment agencies from “[r]estrict[ing] in any manner the employment opportunities of an agency worker by including a non-compete clause in any contract with an agency worker or health care entity.” And Kentucky passed two new laws, one that prohibits healthcare services agencies from “[r]estrict[ing] in any manner the employment opportunities of any direct care staff that is contracted with or employed by the agency including but not limited to . . . contract non-compete clauses”; and the second that prohibits professional employer organizationsi from “[a]ffect[ing], modify[ing], or amend[ing] any contractual relationship or restrictive covenant between a covered employee and any client in effect at the time a professional employer agreement becomes effective or any contractual relationship or restrictive covenant that is entered into subsequently between a client and a covered employee.”
Likewise, while Washington, D.C.’s recently amended noncompete bill bans most noncompetes for employees making less than $150,000 per year, for “medical specialists” the wage floor is $100,000 more. A “medical specialist” is defined as “a highly compensated employee engaged primarily in the delivery of medical services, who: (A) holds a license to practice medicine; (B) is a physician; (C) has completed a medical residency, and (D) receives total compensation in the amount equal to or greater than $250,000.” Moreover, the 365-day post-employment limitation placed on most noncompetes under the bill is doubled, to 730 days, for medical specialists. This is a surprising change because, in its initial form, the D.C. bill would have banned virtually all noncompetes, with an exception for medical specialists making over $250,000 per year. (Less surprising is that the amended bill, like the original version, permits “the District government or the United States government” to impose noncompetes on any employees regardless of compensation level, as well as on their “casual babysitter[s].”)
Finally, amendments to Colorado’s noncompete law that are scheduled to go into effect on August 10, 2022, clarify a physician’s rights. Currently, while C.R.S. § 8-2-113 deems void “[a]ny covenant not to compete provision of an employment, partnership, or corporate agreement between physicians that restricts the right of a physician to practice medicine,” employers may enforce provisions requiring the payment of damages that are “reasonably related to the injury suffered by reason of termination of the agreement,” including damages “related to competition.” Such provisions remain enforceable, but the amendments add an exception to the damages rule that allows physicians to disclose their continuing practice of medicine and new professional contact information to any patient with a “rare disorder” without being subject to damages resulting from that disclosure or from the physicians’ subsequent treatment of any such patient.
As always, we will continue to monitor developments in this area and report any important updates here.
i According to the Society for Human Resource Management (SHRM), “[a] professional employer organization (PEO) is an organization that enters into a joint-employment relationship with an employer by leasing employees to the employer, thereby allowing the PEO to share and manage many employee-related responsibilities and liabilities.”