New Legislation Permits Limited Restrictive Covenants
Knoxville Academy of Medicine Bulletin – September 2007
By W. Dale Amburn and Ian P. Hennessey

Health care providers and health care employers should become aware of requirements created by important new legislation concerning physician non-compete agreements.  The new law applies to podiatrists, chiropractors, dentists, most medical doctors, ophthalmologists, and psychiatrists.  However, emergency physicians and radiologists are specifically excluded from the legislation.  The new law, which becomes effective January 1, 2008, addresses two categories of physician non-compete agreements. 

The first category concerns non-compete agreements within employment or other contractual relationships, such as shareholder agreements, partnerships, and independent professional services contracts.  Restrictions following the termination of these relationships are permitted if three requirements are met.  First, the non-compete agreement must be in writing and signed by the parties.  Second, the duration of the restriction must be for two years or less.  Third, the area of restriction must comply with one of two permitted alternatives.  The first alternative is a geographic restriction, which may be the greater of (i) a ten mile radius from the health care provider’s primary practice site during the relationship, or (ii) the county of the health care provider’s primary practice site during the relationship.  The second alternative is a facility restriction, which prevents the health care provider from practicing at any facility where the employing or contracting entity provided services during the relationship.  Notably, restrictions under the first category are not binding on health care providers who have been employed or under contract for six years or more.

The second category concerns non-compete agreements in conjunction with the sale or purchase of a health care provider’s practice.  Such non-compete agreements will be enforced if the duration and area of restriction are reasonable under the circumstances.  However, there is a rebuttable presumption that such agreements are reasonable.

Undoubtedly, there will be questions regarding the new law, such as the enforceability of existing non-compete agreements as well as those signed before the effective date of the legislation.  Nevertheless, it is important to begin reviewing the language in your non-compete agreements and to make any necessary changes to comply with the new law before it becomes effective next year.

Disclaimer: The information contained herein is strictly informational; it is not to be construed as legal advice.