Non-Competition Clauses and the Rise of Telehealth

Thanks to telemedicine, healthcare providers’ geographic scopes have expanded and become less defined. What does this mean for non-competition agreements?

Red pin nailed on a map.

Healthcare employers have commonly used non-competition clauses—informally known as “non-competes”— for years. The COVID pandemic, though, has changed the way practices deliver healthcare services. There has been a huge rise in telemedicine, with clinicians using technology to see non-emergent patients safely. 

But if a healthcare professional is working under the scope of a non-competition clause that limits where he or she can practice, how does telehealth factor in? Can a physician see patients virtually inside the non-competition clause’s radius? Can the physician work from home within the radius but see patients outside the range? 

While we might not yet have answers to all these questions, it’s important to consider the future of physician non-competition clauses and telehealth in light of modern-day circumstances. 

What is a non-competition clause?

Non-competition clauses typically limit an employee’s right to join a competing business within a specific geographic radius and time period. For example, figure a physician works at one hospital (Hospital A) and then quits. Another hospital (Hospital B) is located 15 miles away and immediately wants to hire the physician. Suppose the physician’s contract with hospital A contained a non-competition clause preventing the physician from working for a competitor within a 20-mile radius and two years after quitting. In that case, the physician cannot work for Hospital B without being in breach of that contract.

A simple non-compete clause in an employment contract might look something like this: 

Employee agrees that during the Term of this Agreement and, if the employee resigns or voluntarily terminates employment with the Company, for a post-termination period of two (2) years (“Restricted Period”), and within a two (2) mile radius of the company, Employee will not directly or indirectly engage or participate, as an employee, consultant, contractor, manager, member, owner, or for remuneration in any other capacity, to provide the same or similar services as those provided by Employee to Company, in any business that directly or indirectly competes with Company and provides private practice medical services.

What is Reasonable?

The idea behind this limitation is to protect businesses—preventing trained employees from taking their talents, patients, and inside information to a competitor. A non-competition clause’s geographic radius and duration typically vary based on what is reasonable for a particular area. A radius of 20 miles, for example, might be too big of a limitation in a densely populated urban area. Yet, that same 20-mile radius might be quite practical for an employee in a rural area.

Are non-competition clauses enforceable? 

Non-competition clauses are usually deemed enforceable, though this is dependent on state law. In states like Illinois, non-competition agreements are generally enforceable if part of a valid and reasonable contract. California, however, takes a more rigid stance on non-compete clauses, mostly considering them unenforceable with few exceptions.

If an employer thinks a former employee has violated a non-competition clause, the employer may bring a breach of contract claim to the court. As a result, courts often determine whether a non-competition clause is reasonable and within the boundaries of state law. 

Generally, when courts evaluate whether a specific non-competition clause is enforceable, they make a few considerations. Does the employer have a valid interest that needs protection? Is this clause putting too much of a burden on the employee? Will the enforcement of this clause hurt the public in some way? If a non-competition clause’s limitations are seen as “reasonable” in light of these interests, the court will likely enforce the clause.

What about enforcement of non-competes in telehealth situations?  

Courts have often taken different approaches to the enforceability of non-competition clauses in telework cases. Even so, response to the issue of non-competition clauses and telehealth has been slow. Courts have largely not caught up on the issue of whether non-compete clauses should be enforceable in the face of the pandemic. However, looking to courts’ responses to this question in the context of other industries may offer some guidance. 

Case: Capsicum Group, LLC v. Rosenthal, et al.

In a 2013 Pennsylvania case, two employees of a Philadelphia-based consulting company (Company 1) lived in New York City and Washington D.C. They each had a non-competition clause restricting them from working for any competing company within 250 miles of Philadelphia.

Both of these Company 1 employees quit Company 1 and joined a competing Detroit-based company (Company 2) as consultants. The employees worked remotely for Company 2 and remained in their homes in New York and D.C. 

Their former employer, Company 1, sued the employees for violating their non-competition clauses. The employees argued that their work was performed for Company 2 in Detroit and was, therefore, more than 250 miles away. Company 1 argued that the work was really being performed at the employees’ homes in New York and D.C., both within 250 miles of Philadelphia. 

How did the court view the geographical scope in the case?

The court’s analysis broke up the employees’ work for Company 2 into two categories: internal business work with Company 2 and external contact with Company 2’s prospective clients. The court concluded that the non-compete was unenforceable with respect to internal business work performed for Company 2. It placed too much of a burden on the employees’ ability to work from home. Moreover, this sort of internal work was being delivered to Company 2 more than 250 miles away. 

In contrast, the court did enforce the non-competition clause with respect to the employees’ contact with prospective Company 2 clients. Here, the employees were interacting with Company 2’s prospective clients nationwide, including those within 250 miles of Company 1. As a result, Company 1 had a reasonable interest in prohibiting this sort of competition. 

Overall, the court concluded that the employees could continue working at Company 2 remotely. However, they could not have substantial customer contact with Company 2’s prospective clients while working from home.  

This example suggests that courts consider whether a non-compete clause holds the correct balance of employer interest and employee burden. Yet enforceability is not always black and white. Courts can look from activity to activity to define what is reasonable. This analysis can also be highly industry specific. What was reasonable in this consulting case could look quite different from what is reasonable in a healthcare case.

What is the future of non-competition clauses in the era of telehealth? 

Despite previous court enforcement of non-competition clauses in telework, the landscape has changed drastically since the 2013 Pennsylvania case discussed above. Additionally, in the healthcare context, the public has a strong interest in receiving accessible care from a physician of their choice. For this very reason, a handful of state governments have already enacted rules prohibiting non-competition clause provisions that restrict a physician’s right to practice, even in normal circumstances.

Now, in the midst of the pandemic, if a patient’s access to care becomes jeopardized by restrictions on providers’ ability to offer telehealth services, a non-competition clause might be seen as overly burdensome or contrary to public policy. Thus, this public policy consideration may be the key to finding a future balance between the goals of non-competition clauses and telehealth availability. 

What if you are concerned about a non-competition clause and telehealth right now?

Providers who have questions about the enforceability of their own non-competition clauses should know that courts still enforce these clauses. However, a court’s analysis may be highly contextual. Further, the common perceptions of non-competition clauses and telehealth are shifting in light of the pandemic. An experienced attorney can help you consider your options moving forward. 

The healthcare attorneys at Jackson LLP have experience on both sides of employment contracts. We help practices craft employment contracts to protect their interests and we review contracts for physicians and other healthcare professionals who want to think strategically about their careers. For assistance in one of the states where we practice, reach out to us. You can schedule a free consultation to learn more about us and our services.

The COVID-19 pandemic is a dynamic and evolving public health emergency. The laws and situation are fluid, and this article may not reflect the most current situation.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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