by Kenneth A. Eisner

As a business lawyer with a specialty in the healthcare field, I have been contacted on numerous occasions by physicians with the same story.

“Hi, I’m Dr. Zhivago. I am about to join a new practice. I have been given an employment agreement and want to know whether it is necessary for a lawyer to review it. I didn’t hire a lawyer to review my first employment agreement and everything has been fine. The agreement looks pretty boilerplate to me.”

I respond that there is no such thing as a healthcare provider boilerplate employment agreement and ask Dr. Zhivago if I may review the employment agreement from her current employer. The response is typically “Sure, but that one is also boilerplate.”

What I often find upon review of Dr. Zhivago’s current employment agreement is that there is a restrictive covenant that may impact her ability to practice at the new location. A restrictive covenant typically includes a provision which significantly limits where and/or what a physician can do after her employment ends and is enforceable if certain conditions are met. Typically, these restrictive covenants attempt to limit where a physician can practice (for example, not in Allegheny County) for a certain period of time (usually one to three years). The covenant also often includes prohibitions against soliciting or recruiting patients and employees of the employer.

For a physician to minimize the impact that an employment agreement can have on her current practice and ultimately, her career is a monumental mistake. In fact, on many occasions, I have been forced to negotiate with the current employer, to release the physician from the current restrictive covenant so that she can practice at the new practice.

In order for a restrictive covenant to be enforceable, (1) the covenant must be reasonably necessary to protect the employer’s interest; (2) the covenant must relate to a contract of employment; (3) the physician must get something of value for agreeing to the covenant; and (4) the covenant must be reasonably limited both geographically and in duration. While enforceable, restrictive covenants in the healthcare field are subject to a stricter scrutiny because of the potential impact that a limitation on healthcare services could have on the public. For example, courts prefer to not enforce a restrictive covenant of a specialist in a geographic area where there is a shortage of such specialists.

In negotiating with the new employer, there are several avenues to attack. The most common ways to attack these restrictive covenants are:

1. Limit the geographic area. Reducing the geographic area from, for example, ten miles to five miles may significantly increase the employment opportunities.

2. Limit its applicability. One argument is that the restriction should only be enforceable if the employment is terminated by the physician and the practice is not in breach of the agreement. The argument follows that if the practice terminates the physician, then the practice does not believe that the physician is that valuable and therefore, the restrictive covenant should not be applicable. Similarly, the physician should not be bound by a restrictive covenant if the physician terminates the agreement due to a material breach by the practice.

3. Limit the duration. While a reduction from 2 years to 1 year may appear to be generous, this reduction is often of little help. Only in unusual circumstances does a physician consider taking a year off or consider working farther away, with the idea of returning to the restricted geographic area the following year.

The restrictive covenant is only one of many significant provisions contained in a physician employment agreement. In the next issue of Hospital News, I will discuss many of the other relevant provisions. After that, hopefully, people will understand that there is no such thing as a “boilerplate” physician employment agreement.

Copyright 2004 Kenneth A. Eisner

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