Texas Requirements for Physician Non-Competes

X-ray reviewDo you think doctors are special?  They are in Texas.  Texas has special laws for doctors and doctor groups that enter into non-compete agreements. The requirements for physician noncompetes are found in Section 15.50(b) of the Texas Business Code.  The statute  sets out criteria for enforceable non-compete agreements against physicians. In order to be enforceable against a person licensed as a physician by the Texas State Board of Medical Examiners, the non-compete must meet the following requirements:

(1) the covenant must:

(A) not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;
(B) provide access to medical records of the physician’s patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas State Board of Medical Examiners under Section 159.008, Occupations Code; and
(C) provide that any access to a list of patients or to patients’ medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;

(2) the covenant must provide for a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and

(3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

The while it is unclear of whether a doctor’s non-compete must meet the requirements of both 15.50(a) and 15.50(b), it is good business practice to ensure that the agreement and medical practice complies with both sets of requirements.

Texas doctors and doctors’ groups often face the enforcement of physician non-compete agreements in two contexts:  the sale of a medical practice, or a doctor’s departure from a medical group.

Enforcement of Non-Compete and Buy-Sell  Buy Out Agreements

As you can see above, Texas law requires the non-compete agreement to contain a provision allowing the physician to “buy out” of the noncompete if he or she wishes to do so.  A Houston Court of Appeals denied an employer’s request for temporary injunction because the non-compete agreement did not have a buyout provision.  The lack of a buyout / Buy-Sell agreement in a physician noncompete agreement may render the agreement unenforceable.  The court and arbitrator may not be able to reform the agreement by creating the buyout / Buy-Sell agreement that is mandated by the statute.

Enforcement of Non-Compete Found in Employment Agreement

When a Texas doctors’ group seeks to enforce a non-compete against a former member of the group, the doctors’ group (as the employer) bears the burden of establishing that the non-compete is ancillary to an otherwise enforceable agreement and reasonable in scope. The non-competes in these situations are found in the employment agreement. The employment agreement must meet all the terms established by Texas courts and laws on covenants not to compete.

When the covenant is ancillary to an agreement other than an employment agreement (i.e., sale of a business), the party against whom the covenant is asserted assumes the burden of proving that the covenant does not meet the statutory requirements of Section 15.50(b) of the Texas Business Code.  In addition to this, the employer seeking enforcement of the doctor’s covenant not to compete must still bear the burden of showing that the non-compete covenant was breached and that damages or an injunction should be granted.

 

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