Noncompete agreements, including healthcare noncompete agreements, prohibit employees from working for a competitor or opening a competing business, typically for a certain period of time after an employee leaves a job. The concept of a noncompete agreement goes back to at least Renaissance times. So, too, do legal arguments against the use of noncompete agreements. That argument, centuries ago and now, is this: restraint of trade is harmful. Efforts to stifle competition are bad.
The Renaissance gave way to the Industrial Revolution, and with the Industrial Revolution came a change in English law’s view of noncompete agreements. English courts began to rule that noncompete agreements were acceptable – provided that they were “reasonable” – that is, not too unfair to employees. As long as a noncompete was reasonably limited in time (that is, the amount of time the agreement stated an employee had to “wait out” before they could work for a competitor was not too long) and activity (that is, the type of work that the noncompete could prohibit the employee from performing involved, say, a single trade, instead of multiple trades), English courts were receptive. U.S. courts took their cue from English courts, and initially followed English courts’ reluctance to void noncompete agreements that were “reasonable.”
Therefore, employers, from the 1800s into the current century, placed noncompete clauses into employee agreements. As time passed, the agreements became distinctively more lopsided; employers pushed the envelope by using language that widened how long the agreements could remain in effect, and that widened the type of activity that an employee could be prohibited from performing for a competitor. Courts would continue to uphold these agreements, by viewing them not as “restraints on trade,” but rather as temporary restrictions on certain economic activity to protect employers’ economic interests. As long as “the public interest” (often code for what a particular judge thinks is fair) was not burdened by permitting noncompete agreements, the agreements could be imposed on employees.
Taking a Bite out of Noncompetes: The Case of Jimmy John’s
Flash forward to the 21st century. In 2014, the envelope pushed back. That year, news broke that sandwich chain Jimmy John’s had been subjecting its sandwich makers to noncompete agreements. The Attorneys General of New York and Illinois swiftly sued and then settled with Jimmy John’s, for its having run afoul of New York and Illinois noncompete laws.
Noncompete agreements are not limited to sandwich shops. Healthcare companies, historically, have imposed noncompetes on clinicians. These noncompetes have required physicians to refrain from accepting a competitor’s job offer upon their departure from the healthcare company at which they worked. Some of the more aggressive noncompetes have been coupled with “nonsolicitation” agreements, that require physicians to not solicit business from their patients (to refrain from “taking their patients with them to their new practice”).
Enter 2024. As part of a growing national trend to rein in the scope of noncompete agreements in multiple industries, Pennsylvania passed legislation targeting healthcare noncompete agreements.
What is the Pennsylvania Fair Contracting for Healthcare Practitioners Act?
In July 2024, Pennsylvania Governor Josh Shapiro signed the Fair Contracting for Healthcare Practitioners Act (FCHCPA) into law. The keystone principle behind the law is that healthcare noncompete agreements are “anti-patient, anti-worker, and bad for the future of medical innovation and treatment in Pennsylvania.”
The FCHCPA applies to “healthcare practitioners,” which the law defines as medical doctors, osteopaths, certified registered nurse practitioners, certified registered nurse anesthetics, and physician assistants.
The act does not obliterate the ability of employers to subject healthcare practitioners to healthcare noncompete agreements: An employer may enforce a healthcare noncompete covenant if the length of the healthcare noncompete agreement is no more than one year, provided that the healthcare practitioner was not dismissed by the employer.
That’s as much as employers get, though. Under the FCHCPA, a healthcare noncompete agreement that does not meet the conditions above is generally “deemed contrary to the public policy,” and is void and unenforceable by an employer (meaning a court will not enforce it). In other words, when a healthcare practitioner departs a practice, the practitioner can practice where they want to practice, when they want to practice. In Pennsylvania, now, gone are the days where an employer can hire a practitioner, and require the practitioner to sign a healthcare noncompete agreement that limits the practitioner’s right, when they leave, to work for a competing practitioner until several years or more have passed.
Have Some Patients: FCHCPA Patient Notification Requirements
The FCHCPA also requires employers to notify “the healthcare practitioner’s patients seen within the past year” (within the past year of the practitioner’s departure) of several things:
- The employer must notify patients of the healthcare practitioner’s departure from the employer
- If the patient wants to receive care from the departing practitioner or another practitioner, the employer must notify patients how the patients may transfer their healthcare records to the practitioner the patient wants to receive care from. Note: The FCHCPA does not affect a departing practitioner’s obligations under HIPAA with respect to fulfilling “right of access to PHI” requests
- The employer must notify the patient that the patient may be assigned to a new healthcare practitioner within the employer, if the patient decides to continue receiving care from the employer
The above notice must be provided within 90 days of when the practitioner leaves the employer. For the notice requirement to apply (that is, for the obligation to provide notice to a patient to kick in), the practitioner must have had an ongoing outpatient with the patient for two or more years.
The FCHCPA takes effect on January 1, 2025.
