issues affecting the enforceability of restrictive employment covenants in the healthcare industry...
DESCRIPTION
I participated in a webinar for clients and friends of Baker Hostetler regarding restrictive covenants in the health care industry.TRANSCRIPT
© 2011 Baker & Hostetler LLP
Issues Affecting The Enforceability of Restrictive Employment Covenants In
the Healthcare Industry
2 Baker Hostetler
MCLE Information
• MCLE/CLE credit available from:– CA, NY, IL and CO
• Credit is pending in:– NJ, TX and FL
• Contact Shannon Morgan to obtain reporting information [email protected]
3 Baker Hostetler
Presenters
David A. Poser
Partner, Cleveland
216.861.6113
Steven A. Eisenberg
Partner, Cleveland
216.861.7903
Joyce Ackerbaum Cox
Partner, Orlando
407.649.4077
Tonya A. Jacobs
Partner, Houston
713.646.1358
4 Baker Hostetler
Today’s Topics
• Are Restrictive Employment Covenants Necessary?
• Crafting Enforceable Restrictive Employment Covenants
• Nonsolicitation Restrictive Employment Covenants
• Specific State Laws Affecting Enforceability of Restrictive Employment Covenants In the Healthcare Industry
• “Nonrestrictive” Restrictive Employment Covenants
5 Baker Hostetler
Legitimate Business Interests
• Confidential Information and Trade Secrets (Business Processes):– Billing or Payment Methods– Pricing and Profit Margins– Marketing Strategies– Proprietary Software– Business Plans
• Patients/Customers/Goodwill– Applicable for physicians, home health care agencies, hospitals, other
health care providers and institutions developing relationships with patients
– Deals with protecting the relationships cultivated between the employer’s patients/customers and the employee
– Typically, patients are the “customers”– Who is the “face” of the employer? (physician, therapist, sales
representative)
6 Baker Hostetler
Legitimate Business Interests (cont.)
• Unique Skills of Personnel/Extraordinary Training– Oftentimes applicable for new physicians completing residency– Must be more than simple on-the-job training– Training is of a unique character and would give unfair advantage to
competitor– Usually involves a significant financial investment
• Referral Services– Unsettled area of the law
• Some jurisdictions that recognize referral sources as legitimate business interests are Kansas, New Jersey, Pennsylvania, and Florida (split)
– Absent a specific statute, typically seeking protection under umbrella of customer/goodwill protection
– Courts may look at what type of investment was incurred to develop the referral relationship and whether the departing employee had such contacts before coming to the employer
7 Baker Hostetler
Crafting Enforceable Restrictive Employment Covenants
• Consideration– Inception of Employment– After Commencement of Employment
• Reasonable Scope of Restrictive Employment Covenant– Temporal Duration of Restrictive Employment
Covenant– Geographical Scope of Restrictive Employment
Covenant– Public Policy Considerations
• Stark Law• Access to Healthcare/Physician Mobility
8 Baker Hostetler
Nonsolicitation Restrictive Employment Covenants
• Nonsolicitation of Employees, Vendors, Suppliers of Former Employer
• Nonsolicitation of Patients
9 Baker Hostetler
State Laws Affecting Enforceability of Restrictive Employment Covenants:
• Covenants Not to Compete Void Per Se
• Covenants Not to Compete with Physicians Void Per Se (but does not render other provisions of any such contract or agreement void).
• Specific Limitations on Covenants not to Compete with Physicians
10 Baker Hostetler
Noncompetition Agreements Void Per Se
• Cal. Bus. & Prof. Code § 166000 prohibits any contract “by which anyone is restrained from engaging in a lawful profession, trade or business” with limited exceptions (i.e., partnership agreement, sale of business).
11 Baker Hostetler
Noncompetition Agreements With Physicians Void, But Damages Relating to Competition Allowed
• Col. Rev. Stat. Ann 8-2-113 (provisions which require the payment of damages upon termination of the agreement may include damages relating to competition).
• Del. Code Ann. § 2707 (same).• Mass. Gen. Laws Ann. Chl. 112, § 12X
(does not render void or unenforceable the remaining provisions of any such contract or agreement).
12 Baker Hostetler
Limitations on Covenants Not to Compete with Physicians: Reasonableness under Tenn. Code
Ann § 63-1-148
• Duration of 2 years or less;
• Maximum geographic restriction the greater of: (a) 10-mile radius from the primary practice site; or (b) county of the primary practice site;
• No geographic restriction, but restricted from specific facilities where physician provided services during employment;
13 Baker Hostetler
Limitations on Covenants Not to Compete with Physicians: Tex. Bus. & Com. Code § 15.50
• Not deny physician access to list of patients seen within 1 year of termination of employment;
• Must provide access to medical records upon authorization of patient;
• Provide for a “buy-out” of the restrictive covenant for a reasonable price;
• Provides a “carve-out” for patients under post-operative care or for critical on-going treatment.
14 Baker Hostetler
Nonrestrictive Restrictive Covenants
• Payment of a “Royalty”
• “Carve-Out” for Patients Under Post-Operative Care or for Critical On-going Treatment
© 2011 Baker & Hostetler LLP
Chicago • Cincinnati • Cleveland • Columbus • Costa Mesa • DenverHouston • Los Angeles • New York • Orlando • Washington, DC
www.bakerlaw.com