On June 7, 2007, the Tennessee General Assembly adopted a bill defining the non-compete restrictions an employer may place on its employed or contracted healthcare providers. The General Assembly's passage of House Bill 240/Senate Bill 1688 follows a 2005 decision, Murfreesboro Medical Clinic, P.A. v. Udom, in which the Tennessee Supreme Court declined to enforce a non-compete provision in an employment agreement between a physician and a private physician-owned medical clinic. In that case, relying in part on T.C.A. §63-6-204, the Court stated that since the state legislature had chosen not to statutorily validate all such non-compete covenants, the one at issue in Udom was "unenforceable." Specifically, T.C.A. §63-6-204 allows non-compete restrictions when the employer is a hospital, hospital affiliate or a faculty practice plan. Since the new legislation does not affect this statute, these employers are still subject to the requirements of T.C.A. §63-6-204.
The new legislation is effective Jan. 1, 2008, after signing by Governor Bredesen. It will be codified at T.C.A. 63-1-148, and provides for the following:
1. Restriction must be in writing
The new legislation allows restrictions on the healthcare provider's practice of his/her profession when agreed to in writing between the employed and/or contracted provider and the "employing or contracting entity." There are no express definitions of or limitations on "employing or contracting entity." Under the new statute, physician practices and private medical clinics otherwise allowed to employ physicians, as well as other authorized employers, can now restrict the physicians they employ from competing in accordance with the terms of the statute as described below.
2. Non-compete period is two years or less
The new legislation allows non-compete restrictions for a period up to two years upon the termination or conclusion of the employment or contractual relationship.
3. Geographic area of employment related restrictions defined
The new legislation defines the maximum geographic area allowed in a healthcare provider non-compete as the greater of (a) the county in which the provider's primary practice site is located while employed; or (b) within a 10-mile radius of the provider's primary site while employed. The new legislation also allows non-compete restrictions without a specified geographic area where the restriction limits a provider's practice at any facility at which the employing or contracting entity provides services during the provider's employment.
4. Employment-related non-compete provisions are voided once the physician has been employed for at least six years
The bill makes the non-compete provisions non-binding once the provider has been employed six years. This allows the provider to work more than six years and leave free of restrictions.
5. Provides for specific non-compete period in sale of practice situations
The new legislation also allows restrictions on competition in the case of the purchase or sale of a health care provider's practice. In this situation, any restrictions on duration and geographical area that are reasonable under the circumstances and agreed to by the parties are considered to be reasonable.
6. Specifies the type of healthcare providers subject to non-compete provisions
The new legislation applies to podiatrists, chiropractors, dentists, optometrists, psychologists and those licensed in the practice of medicine and surgery, but does not apply to radiologists and providers who specialize in the practice of emergency medicine.
If signed by Governor Bredesen, healthcare entities have until Jan. 1, 2008 to determine how to best utilize the newly allowed restrictions in recruiting new physicians and modifying existing contracts. This is a general summary of the changes included in the new bill. Given the complexities involved in the enforcement of non-competes, healthcare employers would be well served to address specific non-compete scenarios with the assistance of counsel.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.