Physician Non-Compete Bill (SB 351) Passes Connecticut Senate & House:
On May 3, 2016, both the Connecticut House of Representatives and Senate passed a bill that, if signed by the Governor, will limit the strength of non-compete clauses in physician contracts.
Non-Compete Time & Distance Restrictions:
Under the bill, a covenant not to compete is defined as “any provision of an employment or other contract or agreement that creates or establishes a professional relationship with a physician and restricts the right of a physician to practice medicine in any geographic area of the state for any period of time after the termination or cessation of such partnership, employment or other professional relationship.” The bill repeats prior Connecticut case law by stating that such a provision is only valid and enforceable if it is (a) necessary to protect a legitimate business interest, and (b) reasonably limited in time, geographic scope and practice restrictions as necessary to protect such business interest. However, it adds a new requirement that a covenant not to compete entered into on or after July 1, 2016 will not be able to restrict a physician’s activities for more than one year or restrict the physician’s activities in a geographic region of more than 15 miles from the “primary site where the physician practices.” The primary site of practice is defined as (a) the location where a majority of the revenue derived from the physician’s services is generated, or (b) any other location where the physician practices that is mutually agreed to by the parties and identified in the non-compete clause. A covenant not to compete which is amended, extended or renewed on or after July 1, 2016 would also be subject to these restrictions.
When a Non-Compete is Not Enforceable:
The bill also provides that a non-compete clause is not enforceable against a physician if the employment or other agreement was not made in anticipation of/as a part of a partnership or ownership agreement and the agreement expires and is not renewed, unless prior to expiration the employer makes a bona fide offer to renew the contract on the same or similar terms and conditions. Additionally, the bill states that a non-compete clause is not enforceable against a physician if the employment relationship is terminated by the employer, unless the relationship is terminated for cause. Lastly, the bill requires that a covenant not to compete entered into, amended or renewed on or after July 1, 2016 be separately and individually signed by the physician.
Provision for Different Treatment of Hospital Non-Competes Removed:
Hospitals expressed strong opposition to a prior version of the bill pursuant to which a covenant not to compete entered into between a hospital, health system, medical school or medical foundation and a physician could only restrict the physician’s right to practice medicine with another hospital, health system, medical school or medical foundation, but not the physician’s right to enter private practice.
The bill awaiting the Governor’s signature does not contain the language treating physician non-competes with hospital affiliated entities differently. Nonetheless, if the Governor signs the bill into law, the landscape for the use of physician non-competes by all types of health care providers in Connecticut will have changed significantly.