2. Martin Merritt , Esq.
Partner: Health Law and Healthcare Litigation
Mmerritt@fflawoffice.com
Martin serves as the Executive Director of the Texas
Health Lawyers Association and a Partner at
Friedman & Feiger. In the past few years ,
Martin has published several hundred articles
in journals such as The Federal Lawyer, The
Texas Bar Journal, Physicians Practice Magazine,
Becker's Hospital Review, Diagnostic Imaging
Magazine, Psychiatric Times and D Magazine
Healthcare Daily. In 2014, Martin co-authored
his second book, "The ABC's of ACOs," a book
published by the Health Law Section of the
American Bar Association. Martin is both a
litigator and provides health law opinions and
transactional services for physicians,
pharmacies, laboratories, ASCs, entrepreneurs
and other healthcare clients
2
3. Karin Zaner,esq
Kane Russell Coleman & Logan
kzaner@krcl.com
Karin Zaner, is the immediate Past President of the Texas
Health Lawyers Association, and a director of the Firm,
Kane Russell, Coleman & Logan. Ms. Zaner has
developed an extensive health law practice. Her
experience in medical peer review began in 1999,
when KRCL represented Dr. Lawrence Poliner in his
federal court lawsuit against Presbyterian Hospital of
Dallas and obtained a $366 million verdict, which was
the ninth largest jury verdict in the country in
2004. She advises her clients on a wide variety of
health law matters such as state and federal immunity
laws and privilege issues, physician employment and
non-compete issues, HIPAA issues, NPDB and self-
reporting issues, privileging and credentialing issues,
Texas Medical Board issues, and other state and
federal healthcare regulations that apply to physicians
(including those in training) and other health care
providers. She practices extensively in Texas but also
helps out-of-state physicians with the association of
local counsel in that state.
3
15. 1500’s version of a Non-Compete and
UTSA : Employees Could Never leave
the island. Ever.
16. This illustrates a timeless struggle
Employer :
• has the leverage (power)
• has all the business
connections
• has all the customers
• Assembled a valuable team of
coworkers
• Has confidential information
and trade Secrets
• Would actually prefer a naked
restraint on Employees
Employee:
• Has very little leverage
• Often running “from
something,” not “to
something”
• Just needs a paycheck/Will
sign anything
• Oftentimes naïve and no
connections
• Doesn’t know what a non-
compete actually means
• Thinks nothing of taking
customer list, fellow workers,
trade secrets , usurping
opportunities
17. Texas’ Historical View:
“Texas Courts historically held that
noncompetition covenants limit competition
and are restraints of trade. Therefore, they are
presumed to be invalid unless specifically
authorized by a statute.”–
--Mark Shank ,Texas Litigators Guide to Departing Employee
Litigation, Ch. 3., P. 41.
18. Codified at Texas Bus. & Com §15.05
(a) Every contract, combination, or conspiracy
in restraint of trade or commerce is unlawful.
(b) It is unlawful for any person to monopolize,
attempt to monopolize, or conspire to
monopolize any part of trade or commerce.
19. On the Other Hand
Freedom to Contract :
“Parties are free to contract in
any manner which does not
violate a statute or public
policy.”
RESTATEMENT (SECOND) OF CONTRACTS § 178(1)
20. Texas Covenant Not to Compete Act
Bus. & Com §15.50 (1989-93)
“A covenant not to compete is enforceable if it is
(1) ancillary to or part of an otherwise
enforceable agreement at the time the
agreement is made (2) to the extent that it
contains limitations as to time, geographical area,
and scope of activity to be restrained that are
reasonable and (3) do not impose a greater
restraint than is necessary to protect the goodwill
or other business interest of the promise.”
21. What this means in English:
• A covenant not to compete is a contract in
which the employee is giving up a valuable
right . The rules are:
• First: Must have “consideration.” “At will”
contracts can’t be enforced (“illusory”).
• Second: Must be some “Justifiable business
purpose.”
• Third: Must be reasonable in time, scope, and
place.
22. “Justification” for the Non-Compete Clause:
Historically, courts were reluctant to accept this
contractual waiver of rights. Courts tied the
Consideration to the the Non-Compete (had
to bear some relation to the promise not to
compete), such as disclosure of confidential
information in exchange for the promise not
to compete.
23. Texas Supreme Court
Lessens the Burden on Business.
• Light v. Centel Cellular Co. of Tex. 883 S.W.2d,
647 (Tex. 1994)
• Alex Sheshunoff Mgmt. Serv’s, L.P. v.
Johnson, 209 S.W.3d 644 (Tex. 2006)
• Mann Frankfort Stein & Lipp Advisors v.
Fielding, 289 S.W.3d 844 (Tex. 2009).
• Marsh USA Inc. v. Cook, 354 S.W.3d 764 (Tex.
2011).
24. There is a reason for that...In
California, employers feel are highly
burdened.
25. There is a “job-creation” element to
Texas Supreme Court Holdings
27. The trial courts: contracts must
appear to protect some legitimate
business interest
Something other than
“I don’t want employees as
competitors”
• Preserve business
goodwill/connections
• Particularly in Sale of Business
• Protect customer lists
• Preserve valuable team of
coworkers
• Protect confidential
information and trade Secrets
28. Some of the more clever provisions.
• “I agree that there is no
adequate remedy at law
for my breach.”
• “ I agree that the
noncompete will not
harm my ability to earn a
living.”
• “I agree that an ordinary
medical procedure is a
trade secret”
29. § Sec. 15.52.
PREEMPTION OF OTHER LAW.
“The criteria under 15.51 of this code are
exclusive and preempt any other
criteria for enforceability of a covenant
not to compete under common law or
otherwise.”
30. Nacogdoches Heart Clinic vs. Vijay
Poloka, MD
No. 12-11-00133-CV. (Tyler)
Physician argued that even if the non-compete
contract fits squarely within the statute, it is
unenforceable if Public interest would be
adversely affected.
Citing Marsh USA, Inc., 354 S.W.3d at 772-73; DeSantis, 793 S.W.2d at
681; Matlock v. Data Processing Sec., Inc., 618 S.W.2d 327, 329 (Tex. 1981).
31. Nacogdoches Heart Clinic vs. Vijay
Poloka, MD
No. 12-11-00133-CV. (Tyler)
Held: Even if a physician non-compete contract
fits squarely within the statute, it may be
unenforceable if Public interest would be
adversely affected
Citing Marsh USA, Inc., 354 S.W.3d at 772-73; DeSantis, 793 S.W.2d at
681; Matlock v. Data Processing Sec., Inc., 618 S.W.2d 327, 329 (Tex. 1981).
32. Nacogdoches Heart Clinic vs. Vijay
Poloka, MD
No. 12-11-00133-CV. (Tyler)
In other words “Public Policy”
Arguments are not preempted
Citing Marsh USA, Inc., 354 S.W.3d at 772-73; DeSantis, 793 S.W.2d at
681; Matlock v. Data Processing Sec., Inc., 618 S.W.2d 327, 329 (Tex. 1981).
33. There are many Patient Safety and
Health law reasons the contract might
not be “otherwise enforceable “
• “Offensive use” of Stark law and the AKS: “The
contract is illegal”
• Similar to “Offensive use” of Stark Law:
– Can’t delegate because “I don’t trust you with patient
safety”
– HIPAA “I don’t trust you with PHI”
• Corporate practice of Medicine
• Fee Splitting
35. Tip No. 1—
. READ YOUR AGREEMENT BEFORE
YOU SIGN
36. 1. READ AND UNDERSTAND
AGREEMENT
BEFORE YOU SIGN
►Terms become enforceable once you sign;
► and possibly before, when you act in
compliance.
► Understand the substance thoroughly.
► Hire an experienced health care attorney to
review
fully discuss;
will allow you ask appropriate questions;
and make your best decision;
what about negotiation? Depends. . .
37. 2. HOW MUCH LEVERAGE DO YOU
HAVE?
►Typically depends on how much
the employer needs you;
the employer needs call coverage;
the employer profits from your services.
► Greater ability to negotiate v. lesser ability
Remote geographic location v. urban area
Uncommon subspecialty v. common or general;
Profitable subspecialty v. marginally profitable.
►Much is not negotiable.
►Being too aggressive may label you a difficult physician,
so PROCEED WITH CAUTION. . .
38. 2. HOW MUCH LEVERAGE DO YOU
HAVE?
►Focus negotiations on—
reduce the time period/geographic scope
of a non-compete;
increase salary or bonus structure;
unfavorable terms that are practical (input
by physician is essential, what really is untenable);
unfavorable terms that are legal (health
care lawyer must distinguish between a perfect
contract and an acceptable one and have a crystal
ball); for example —
39. 2. HOW MUCH LEVERAGE DO YOU
HAVE?
►Requirement that physician terminate hospital privileges when
employment terminates (legal concerns due to curtailment of
privileges and possible reporting effects)—
Hospital is employer (standard);
Employer has a exclusive contract with hospital (pretty
standard);
Employer has a strong relationship with hospital and
physician obtains privileges as a result (possibly negotiable);
Physician already has privileges at a hospital but termination
required despite existing relationships (negotiable);
Power of Attorney that requires physician to sign away
power to resign privileges to Employer (run like the wind!!!).
40. 3. NON-COMPETE OBLIGATIONS
►Will restrict you from practicing medicine—
in your sub-specialty
in a certain geographic location
for a certain amount of time
after the termination of the employment
contract.
► Be sure to understand what this means in reality.
► Certain statutory requirements for a non-compete to
be enforceable against physicians in your state
►Texas requires–
41. 3. NON-COMPETE OBLIGATIONS
Physician non-compete statute in Texas (Section 15.50(b) of the Texas
Business Code)—
(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;
42. 3. NON-COMPETE OBLIGATIONS
Physician non-compete statute in Texas (Section 15.50(b) of the Texas
Business Code)(contd.)—
(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;
(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.
43. 3. NON-COMPETE OBLIGATIONS
►But unless these requirements are facially deficient;
► Physicians should presume enforceable as part of the
employment arrangement;
► Physicians should presume that employer will actually
enforce it;
► Prevents physician from quitting and opening up shop
across the street (arguably fair);
► Even if employer terminates without cause;
► Texas statute was designed to protect physicians.
► But now has become a road map to enforceable non-
competes for employer?
44. 3. NON-COMPETE OBLIGATIONS
► Comprehensive resource– Mike Kreager, The Physician's
Right in S 15.50(b) to Buy Out A Covenant Not to Compete in
Texas, 61 Baylor L. Rev. 357, 409-11 (2009).
►Example– “after acquired” locations
Physician employee for 5+ years;
Physician given notice of non-renewal;
Employer 6 mos ago acquires additional locations;
Contract written in present terms as to non-compete
(“any practice location”);
Contract on its face appears to recite all the
statutory requirements needed in Texas;
45. 3. NON-COMPETE OBLIGATIONS
►Indefinite description of a geographical area should
render non-compete an unenforceable as written—
Butts Retail, Inc. v. Diversifoods, Inc., 840 S.W.2d
770, 774 (Tex. App. 1992) (language “‘metropolitan area’
of the Parkdale Mall store in Beaumont, Texas” indefinite
and unenforceable);
Gomez v. Zamora, 814 S.W.2d 114, 117-18 (Tex.
App. 1991) (language “existing marketing area” and
“future marketing area of the employer begun during
employment” indefinite and unenforceable).
46. 3. NON-COMPETE OBLIGATIONS
► A reasonable area consists of the territory in which the employee
worked while employed–
Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 660 (Tex. App.
1992); Diversified Human Res. Group, Inc. v. Levinson-Polakoff, 752
S.W.2d 8, 12 (Tex. App. 1988);
Martin v. Linen Sys. for Hosps., Inc., 671 S.W.2d 706, 709
(Tex. App. 1984); Cross v. Chem-Air S., Inc., 648 S.W.2d 754, 757 (Tex.
App. 1983);
Evan's World Travel, Inc. v. Adams, 978 S.W.2d 225, 232–33
(Tex.App.-Texarkana 1998, no pet.) (finding that a covenant not to
compete that restricted the employee from working in any State in
which the employer had conducted its business during the employee's
term of employment was “greater than necessary” to protect the
employer's legitimate business interest).
47. 3. NON-COMPETE OBLIGATIONS
► If a covenant is determined overbroad, the court will reform its
terms to make it reasonable. Butler v. Arrow Mirror & Glass, Inc., 51
S.W.3d 787, 793 (Tex. App.—Houston [1st Dist.] 2001, no pet.)
► Other jurisdictions have held that expansion of the geographic
scope should not be enforced if vague or unreasonable (see me for
specific case cites).
► Davis v. Albany Area Primary Health Care, Inc., 503 S.E.2d 909, 911
(Ga. App. 1998)—
A non-compete prohibited a physician from practicing medicine within
a 20 air-mile radius of any of the non-physician group's centers for a
period of two years upon termination of the employment agreement;
The non-compete barred her from working within 20 miles of the
existing clinics where she never worked or even the new clinic opened
during her tenure.
Georgia court observed that group could open a clinic within scope and
require the physician to move pursuant to the non-compete agreement.
48. 3. NON-COMPETE OBLIGATIONS
► Public policy issues but may only help areas “in need”—
One Texas appellate court refused to enforce a covenant
not to compete due to limited access to cardiologists. Nacogdoches
Heart Clinic, P.A. v. Pokala, No. 12-11-00133-CV, 2013 WL 451810, at
*4 (Tex. App.—Tyler Feb. 6, 2013, pet. denied).
Court declined to enforce a non-compete on public policy
grounds and explained, “the public interest [in having access to cardiac
care] would be adversely affected” if the cardiologist was restricted
from practicing in the same community as his former employer;
In small communities like Nacogdoches, the court reasoned,
“for one doctor to be taken out of the equation hurts the medical care
of the people.”
49. 3. NON-COMPETE OBLIGATIONS
►Attack consideration (ALSO for non-solicitation and other obligations)
Must be given in the otherwise-enforceable agreement;
Must give rise to the interest being restrained;
Covenant must be designed to enforce the promise's
consideration or return promise in the otherwise enforceable
agreement;
See Curtis v. Ziff Energy Group, 12 S.W.3d 114, 118 (Tex.App. —
Houston [14th Dist.] 1999, no pet.); Donahue v. Bowles, Troy, Donahue,
Johnson Inc., 949 S.W.2d 746,751(Tex.App.—Dallas 1997, writ denied).
Sources of professional services (referral physicians and patient
lists/contact) are not protectable interests. See Philip H. Hunke v. Wilcox, 815
S.W.2d 855, 858 (Tex. App.—Corpus Christi 1991, writ denied).
►BUT TO WHAT END?
50. 3. NON-COMPETE OBLIGATIONS
►Practical realties limit physician’s options–
Physician has terminated or (worse) been terminated;
Physician needs specificity, but contract will be broad;
Next employer will inquire; physician best disclose;
Next employer (no matter how enthusiastic) does not want to be
Defendant No. 2 in a non-compete litigation, which usually will
involve immediate injunctive relief;
Presume that employer will enforce as they have resources (David
v. Goliath) and if they do not, other physician employees will assume
that theirs won’t be enforced either.
Last option– File a lawsuit for declaratory judgment as to
enforceability.
But is this is viable option to a physician who is now out of a job?
►All this makes front end discussions with an attorney CRUCIAL (Tip No. 1).
51. 3. NON-COMPETE OBLIGATIONS
► Physician may use arbitration process to determine whether price of
buyout is reasonable (is 2X yearly salary? Just saw one that is 3X= $1M?);
► But beware of turning an buy-out “option” into a requirement to pay. See
Sadler Clinic Ass'n, P.A. v. Hart, 403 S.W.3d 891, 898 (Tex. App—Beaumont
2013, pet. denied)—
Court upheld a buyout provision of a non-compete agreement
that required physician to pay 12-months' salary or not compete in
designated area;
Reasoning was that if the physician elects to compete despite
signing a valid noncompetition covenant with a buyout provision, the
physician must pay the agreed amount or elect to have a reasonable price
determined by an arbitrator.
Beware of using this as a venue to determine enforceability
(litigation may be a better option, if allowed; what if arbitration is
mandated?).
52. 4. NON-SOLICITATION AND
NON-OWNERSHIP OBLIGATIONS
► Not per se prohibition from practicing medicine;
►But may impact allowable ownership interests during contract as well as
upon termination of the employment contract–
the patients or referral sources to whom you can market;
the patients you can treat;
the employees whom you can hire;
the ownership interests that can be maintained;
the clinical privileges that can be maintained;
► Employers draft these to be broad and indirect;
► Depending on leverage, could negotiate these to be more narrow –
prohibit solicitation of current patients referral sources, and
employees rather than potential;
prohibit ownership only where directly conflicting;
clarify that restrictions do not apply to after-acquired locations.
53. 4. NON-SOLICITATION AND
NON-OWNERSHIP OBLIGATIONS
► Any radiuses (keep in mind for non-competes as well) —
Specify that distance measured by “driving distances”;
Otherwise, it will likely be “as the crow flies”
► Determine if any ownership interest is actually implicated—
Does physician has ownership interests that need to be
disclosed and excepted?
Required to perform a certain number of cases at the facility?
What other requirements to maintain “Qualified Physician”
status as to the ownership interest?
►Determine if clinical privileges at other facility are implicated—
Does physician have clinical privileges at other facilities? Is there
a reason to maintain? Are cases required to maintain privileges?
Determine how to resolve (narrow or resign?).
54. 5. HIPAA, PRIVACY, AND TRADE
SECRET CONFIDENTIALITY
► Observe all employment policies, including HIPAA and patient
privacy laws, at the outset of the employment relationship.
Keep it simple by using the phone, pager, laptop, computer tablet
supplied to you by your employer;
Avoid forwarding information to personal devices;
Always use proper mobile device protocols (see HHS handout for
guidance);
Avoid taking hard copy information that is not secured to non-
office locations.
► Just because you have access to confidential materials (such as the
EHR, with its e-trail), does not mean you should access them.
► Limit access to patient treatment or other proper purposes as
specifically authorized by your employer (avoid EHR “trolling”
allegations as they can turn into HIPAA violations).
55. 5. HIPAA, PRIVACY, AND TRADE
SECRET CONFIDENTIALITY
► Use the trade secrets of your employer for employment purposes only.
► What are trade secrets (aka “consideration” for non-competes)
Confidential information; affirmatively maintained and protected
by employer as secret;
Specialized training and knowledge, more than at-will duties;
Specific proprietary processes of practice (clinical assessment
date, EHR software, billing software).
Remember that employer can assert no proprietary interest
sources of professional services (referral physicians and patient lists/contact).
See Philip H. Hunke v. Wilcox, 815 S.W.2d at 858, supra.
In fact, TMB Rule 165.5 requires employer to not interfere with
access to patient lists/contact information for all patients “seen” in the last 2
years when the physician separates from employer (physician must meet
patient notification requirements).
56. 6. IS THERE AN INCOME GUARANTY
OR RECRUITMENT COMPONENT?
► Funds offered that enable support for salary payments as physician builds
practice (triad between physician, employer, and hospital).
►Federally-regulated requirements allow such amounts to be forgiven as
long as physician practices in certain service area for certain period of time.
► But an income guaranty greatly complicates matters–
if physician’s employment is terminated (e.g., economics of
practice fail, peer review issue surfaces, other unforeseen factor arises)
otherwise need to relocate.
► Physician will usually hold the proverbial bag in the triad.
► Physicians must understand the risks and benefits before you accept.
►Again, front end discussions with an attorney are CRUCIAL (Tip No. 1).
► And certainly legal help needed if a decision made to leave the practice
area or otherwise not meet forgiveness obligations.
57. 7. ENVISION LOGISTICS
► Logistics are a crucial part of a physician’s practice,
► Control over them ceded when employed, so clarify—
Actual locations of clinical practice;
Which hospital or health care facilities expected;
Call coverage requirements/how scheduled;
Holidays and vacation amounts and expectations. ►
Many employers now measure clinical “quality”–
Understand algorithms and formulas;
What is measured/how it is measured;
OUTLIER is an ugly word/avoid it all costs.
58. 8. MAKE A GOOD MATCH
► Be realistic about your decision to become employed.
► Compelling reasons will have tradeoffs—
salary/bonus structure v. how much actually paid;
benefits v. how much are these actually worth;
call coverage v. actual working and call coverages schedules;
shifting of overhead/admin (lease, EHR, employee costs,
billing costs) v. unreasonable and unaccounted for charges/expenses;
clinical quality expectations v. physician independence;
► Look for an employer with reputation of treating physicians right;
► Spend time conducting thorough due diligence before you take the
plunge.
► And if you are an employer, treat physicians right;
59. 9. RECOGNIZE RED FLAGS
► Once the employment relationship starts—
don’t be blind to signals that not working;
Economics, personalities, politics, etc.
► Address red flags early to allow
a jump on addressing concerning issues,
before there is a crisis with limited options,
an experienced health care attorney will
help.
60. 10. RESIST THE URGE TO RESIGN
► If actual crisis arises—
DO NOT RESIGN EMPLOYMENT (please, please);
seek guidance of an experienced health care
attorney;
will help with best decision;
will guide physician through the process.
► Reporting obligations exist for all physicians—
Interwoven state and federal reporting
requirements;
Coupled with self-reporting obligations;
Must not unwittingly trigger affirmative report;
Risk in resigning when there is an “investigation.”
61. 10. RESIST THE URGE TO RESIGN
► Even if employer is not a hospital or health care entity (reporting
entity), tread carefully--
clinical privileges may be contractually tied to continued
employment;
A Power of Attorney makes it really risky;
► Determine a strategic legal plan to—
resolve issue and continue employment; OR
if continued employment not feasible, extricate from
employment ;
top priority is minimizing damage to professional record;
legal help is crucial to ensure best result!
► If you are “on the other side”– BE FAIR AND DO WHAT IS RIGHT!
62. Questions? Comments?
Thank you for this opportunity!
Karin M. Zaner, J.D.
KANE RUSSELL COLEMAN & LOGAN PC
1601 Elm Street, Suite 3700
Dallas, Texas 75201
(214) 777-4203
E-mail: kzaner@krcl.com
63. Questions? Comments?
Thank you for this opportunity!
Martin Merritt
Friedman & Feiger
5301 Spring Valley Road
Suite 200
Dallas Texas 75254
214.952.1279
mmerritt@fflawoffice.com
