New legislation significantly changes the law regarding covenants not to compete involving physicians. This new law effective July 1, 2016 (Public Act 16-95) is intended to increase competition among healthcare providers. While there has never been a really bright line rule for enforcing non-competes in Connecticut, and elsewhere, courts typically considering the “reasonableness” of the restrictions imposed. With this new law, Connecticut now has a bright line rule limiting physician non-competes to no more than: (a) 1 year; and (b) 15 miles from the “primary site” where the physician practices.
The reasonableness standard that has always applied to non-competes will continue to be important. In any enforcement action, physician non-competes will continue to be enforceable only if: (a) necessary to protect a legitimate business interest; (b) reasonable in limiting time, geographic scope and practice restrictions; and (c) otherwise consistent with law and public policy. An important drafting note for non-competes and when making hiring decisions is determining (and defining) “the primary site” to avoid conflicts in interpretation and when more than one location may apply. The “primary site” where the physician practices” is defined as “the office, facility or location where a majority of the revenue derived from the physician’s services is generated.” The statute also includes additional restrictions for non-competes entered into, amended or renewed, after the effective date, between hospitals, health systems, medical school or medical foundations allowing these covenants to restrict the physician’s right to practice only with another such entity or foundation.
Also, these non-competes will be void and enforceable against a physician if: (1) the employment agreement was not made in anticipation or part of a partnership or ownership agreement and the agreement expires and is not renewed, unless, prior to the expiration, the employer makes a bona fide offer to renew the contract on same or similar terms and conditions; or (2) the employer terminates the employment or contractual relationship without cause. It’s important for employers to note that if a non-compete drafted under the new law exceeds the scope of its provisions (both the long existing “reasonableness standard” and the new bright line rule defining the time and geographic limitation from the primary site); or if the physician’s employment or contractual relationship is terminated without cause, or the agreement expires, the non-compete will be utterly void and unenforceable.
Lastly, in order to prevail, a party seeking enforcement must prove: (1) the non-compete complies with the new statute in all respects; (2) that they have not violated its provisions; and (3) that actual damages were suffered.
With the important new requirements under this bill, effective July 1, 2016, we can’t stress enough the importance of reviewing existing physician non-competes before contracts are renewed and having counsel prepare or review non-competes for all new hires to ensure they meet the requirements of this new law. We welcome inquires on how we can assist.