While physician employment agreements vary in their form, length, terms and provisions depending on the employer type and which state the agreement is in, one aspect that is a near-certainty in every single physician employment agreement is the Non-Compete Agreement (also called a Restrictive Covenant). Whether a hospital position, an academic appointment or entering into private practice, a physician accepting a job offer can almost certainly expect to be bound by a Non-Compete upon termination. The question of whether a Non-Compete is enforceable and to what extent it can validly restrict a physician’s right to work is a difficult one. Courts in most states require that Non-Competes be examined on a case-by-case basis when challenged, meaning that there often are no “bright-line rules” as to what is allowed. However, some states have recently created relevant statutes with guidelines for how employers can and cannot restrict their physician employees’ behavior. Because Lauth O’Neill is based in Indianapolis, this post will focus on the recent updates to Indiana’s law, which has significant repercussions for physicians and employers in this state.
Early this year as the new legislative session got under way, healthcare attorneys heard rumors about a supposed ban on Non-Competes for doctors in Indiana. Now, we all know 2020 has been wild, but not that wild. The rumors were not true, but in reality there was a significant update. Effective as of July 1, 2020, a new chapter in the Indiana Code places specific restrictions on physician Non-Compete agreements. The new requirements, outlined in I.C. 25-22.5-5.5, detail language and provisions that each physician employment agreement must contain or else the Non-Compete will be completely unenforceable. Specifically, any physician employment agreement that has a Non-Compete entered into after July 1, 2020 must contain the following:
• a provision that entitles the physician to see any notices about his/her departure that are sent by the former employer to the physician’s patients;
• a provision indicating that the employer must share the physician’s last known or current contact information with any patient who asks for it;
• a provision entitling the physician to copies of patient medical records;
• a “buy-out” provision on the Non-Compete; and
• a provision that prohibits the providing of patient medical records to a requesting physician in a format that materially differs from the format used to originally create or store the medical record.
Importantly, the new law does not merely dictate that employers adhere to these requirements, but rather it requires that the employment agreement actually contain language guaranteeing each of them. In that sense, employers must be very careful in drafting their employment agreements, as omission of any of these provisions will render the Non-Compete entirely unenforceable. With regard to agreements entered into prior to July 1, 2020, nothing has changed, and the new law only applies to new employment agreements.
One of the most pressing new dilemmas created by the law pertains to the requirement for a buy-out. The code tells us that a physician whose employment has terminated/expired must be given “the option to purchase a complete and final release from the terms of the enforceable physician non-compete agreement at a reasonable price.” In other words, the physician must have the chance to pay their employer a sum of money rather than be bound by the non-compete. This is not surprising, as buy-out provisions are very common in Non-Competes, but what is a “reasonable price”? No one knows. In that sense, this requirement creates more questions than answers. Notably, the statute goes on to clarify that if a physician does not utilize the buy-out, the employer is not restricted in its ability to exercise equitable remedies to enforce it (i.e. injunctive relief). This is an important clarification because the existence of a buy-out option theoretically refutes the argument that an employer would suffer “irreparable harm” if the Non-Compete is violated, a requirement for pursuit of injunctive relief.
The statute does nothing to identify what constitutes a reasonable geographic restriction for a Non-Compete, and also does not discuss duration. In this sense, there are many factors that remain up for discussion in terms of reasonableness and enforceability. The one thing we do know is that unless employment agreements contain each of the above-described provisions, there will not be a need for a determination of reasonableness, as the Non-Compete will be wholly unenforceable.
In reality, the new statute is a good thing for physicians in Indiana. It really just amounts to an additional burden on employers if they want their physicians to be bound by a Non-Compete. Physicians should do nothing more than sit back, say nothing, and hope their future employers missed the memo on the new update (and have their employment agreement reviewed by Lauth O’Neill, of course).