Understanding the Basics of Restrictive Covenants in Employment Agreements

Restrictive covenants are common in contractual agreements involving physicians and need careful consideration to minimize potential conflict during the term of the contract and on physician departure from a group practice or hospital system.

A general overview of the different components of restrictive covenants is provided, including specific information related to noncompetes, nonsolicitations, and nondisclosure agreements.

In general, states will uphold restrictive covenants if the elements of the noncompete are reasonable regarding geographic distance restrictions (e.g., <20 air miles), time restrictions (e.g., <2 years), and scope of services. However, states vary considerably in the interpretation of restrictive covenants. Other components of the contract, such as alternative dispute resolution (mediation and/or arbitration) and buy-out clauses (i.e., liquidated damages provisions), should be considered at the time the agreement is negotiated.

States are balancing the protection of business interests with the protection of free trade. It is important that physicians seek counsel with an experienced health care attorney with respect to restrictive covenants in his or her specific state. A simple, well-written, and reasonable restrictive covenant can often help limit legal conflict and expense.