You’re ready to begin offering quality patient care after completing residency and fellowship. You consider a promising offer from a private practice, an academic department in a health system, or multispecialty group. However, you discover that the contract from your prospective employer contains a restrictive covenant, or noncompete clause. If you decide to leave the employer for another opportunity, the noncompete precludes you from practicing for a specific time within a certain geographic area. Otherwise, you might risk your employer suing you for breaching your contract — and you incurring harm to your reputation.
In another scenario, you serve as chair or other senior member of a radiology or radiation oncology practice. A top partner or associate shares that they have received an offer to join another group or health system in the region. You’ve mentored this individual and appreciate this recognition of them. Yet, as a practice leader, you may have to advise your colleague that they have a noncompete clause in the contract and might well invoke the provision should they join the competing entity. Sometimes, a radiology group’s contract with the hospital might require the group to include a noncompete clause in all contracts with their members.
What to do? In this second part of our series on noncompetes, we’ll discuss their impact on ACR members who are on each side of an employment or contractual matter (read the first part). We’ll then recommend tips for addressing these provisions.
Members’ perspective will vary dramatically based on their side of the bargaining table. The noncompete reasonably may safeguard a hospital or practice’s considerable investment in a member as part of a group. With no clause, a group may lack bargaining power with a hospital system because the latter could lure away some people to start a new team.1 But radiologists negotiating contracts with initial, or new, practices will regard this provision unfavorably if they eventually wish to seek a more appealing position or need to leave for personal reasons.2
On either side, members must consider these key legal steps:
- Analyze a noncompete under each jurisdiction’s law. Check the governing or applicable law of your state and city. Teleradiology contracts pose special challenges.
- Determine whether you could show a court why a noncompete either is — or is not — enforceable. For example, a practice that attempts to enforce a noncompete against of one of its radiologists or radiation oncologists likely must demonstrate particular harm to the group. A judge might not accept an employer’s allegations of “risk of harm to customer goodwill stated in general, conclusory terms,” as noted in a recent case.3
- Be aware that noncompetes might, but don’t always, transfer to an entity that acquires or merges with a group or health system. In some cases, courts have ruled that noncompetes are enforceable in mergers, rather than asset purchases, because the surviving entity assumes the contractual rights and liabilities of the merged entity.4
- Keep in mind that a practice cannot waive a noncompete clause in a member’s contract when that clause is required in the group’s contract with the hospital. Only the hospital can waive that requirement, and, even if the hospital was willing to waive it, the group may not want to waive the requirement to prevent a radiologist from becoming an employee of the hospital.
- It’s possible the group may waive the noncompete clause if there is no hospital contract requiring it. Whether the practice would agree to waive the provision is uncertain. The member might be able to negotiate out of the noncompete by convincing the practice to shorten its duration or scope, in return for paying money to the group.
We recommend these pointers for all members who confront noncompete provisions:
- Negotiate as fairly and candidly as possible with an employer or prospective employee. Consult a qualified lawyer when evaluating the noncompete.
- If you lead your practice or negotiate contracts for them, consider advising the prospective employee that circumstances may change. For instance, another group or hospital system may merge with or acquire the practice. The challenge to sharing any information occurs when the group may have signed a nondisclosure agreement and cannot reveal even the existence of that agreement, let alone a potential deal.
- If you apply to join a practice, ask about its current and future status. For instance, you should ask whether the practice might merge with, acquire, or be acquired by another entity or entities. Be prepared to get a noncommittal, or even terse “no comment” response.
The ACR has addressed this volatile issue through its governance. Members debated at last May’s Council meeting a resolution on partnership track associates in practice equity transactions. Resolution sponsors maintained that associates in groups agreed to noncompete clauses in contracts because they understood they would be considered for a potential equity partnership. However, these associates apparently were unaware that the practices might change their structure, such as engaging in an equity transaction. Sales to an outside investor, though, might remove that opportunity. Some members countered that the resolution was not viable because practices could not disclose confidential negotiation information. They also asserted that the ACR should not provide financial resources to intervene in individual practice matters.
After vigorous debate, the Council voted to refer Resolution 25 to the ACR BOC. The BOC requested that a team, led by William T. Herrington, MD, FACR, develop a proposed resolution. Dr. Herrington’s team presented its findings at the BOC’s fall 2021 meeting and proposed a resolution for the Council to consider at ACR 2022 in April. The BOC voted to sponsor this resolution. Notably, it resolves in part “that the ACR recommends that in the event of a substantial change in or control of ownership or structure of the practice, any restrictive covenant in an associate’s current employment contract should be waived.” The team believes that the threshold for “substantial change… or control” should be when a major activity, such as a merger or acquisition, occurs, not the departure of one or two practice owners.
Noncompetes present high clinical, economic, and personal stakes. Tensions may surface. Ultimately, each side must work in good faith with one another.