One of the most common legal questions that medical professionals (doctors, dentists, PAs, NPs, etc.) are interested in understanding is whether the non-compete clause they sign in an employment agreement is enforceable. A non-compete clause is one type of restrictive covenant that often prohibits an employee from competing with his or her prior employer for a certain period after the employee’s employment ends. At some point during their careers, many Georgia doctors will sign an employment agreement containing provisions that restrict their post-termination ability to compete, solicit patients, referral sources and employees, and disclose and use confidential information.
Many doctors have the false belief that restrictive covenants are unenforceable because they restrain medical providers from treating patients after termination of the employment agreement. Under Georgia law, and in most states, the enforceability of restrictive covenants hinges in large part upon three factors:
- Territory
- Duration
- Scope of prohibited activities
The Georgia Restrictive Covenant Act (the “Act”) permits certain limitations on post-termination competition (non-compete clause), patient or customer solicitation (non-solicitation clause) and the disclosure and use of confidential information (non-disclosure clause). What does this mean for Georgia physicians and dentists? This means that you should be cautious before entering into contracts because the Act applies to doctors that sign restrictive covenants included in employment agreements, asset or stock purchase agreements and partnership agreements. The Act provides that restrictions during the employment term and for up to two (2) years following the end of the employment period are presumed reasonable. Therefore, most Georgia healthcare employers follow the specific guidance of the Act by implementing two (2) year restrictive covenants in the employment context. The Act creates a rebuttable presumption that a temporal restriction of five (5) years or less is deemed reasonable in the context of a purchase and sale of assets, stock or partnership interest.
Under the Act, a geographic limitation is required for enforcement of a non-compete clause; however, the reasonableness of the territorial restriction is measured by the area in which the employer does business (and not the area in which the employee provided services) as long as the total area is reasonable and/or the covenant specifies a list of prohibited competitors. Non-compete clauses restricting physicians from competing in numerous counties or within thirty (30) to fifty (50) miles of an employer’s location have historically been found reasonable by Georgia courts.
The breadth of the prohibited activity is also evaluated by Georgia courts in assessing the reasonableness of a non-compete clause. Non-compete covenants should prohibit the departing employee from rendering competitive services or activities of the type conducted, offered or provided within the two (2) years prior to termination.
The Act requires that non-solicitation clauses governing an employee’s post-termination conduct be limited to only those customers, patients or prospective customers with whom the departing employee had material contact. Material contact is defined as contact with an existing or potential customer on behalf of the employer. Non-solicitation clauses governed by the Act are not required to include a geographic limitation. Under the Act, non-solicitation clauses are presumed reasonable based upon the same acceptable time periods for non-compete clauses described above.
The Act permits Georgia courts to modify or “blue pencil” a restrictive covenant that is considered overly broad or non-compliant with the terms of the Act. In sum, a court is allowed to sever or remove the part of a restrictive covenant that would otherwise make the entire covenant unenforceable and enforce the provisions of a restrictive covenant to the extent the provisions are reasonable under the Act. The modifications must not render the covenant more restrictive than it was under the original covenant drafted by the parties.
Employers in the healthcare industry want to protect their legitimate business interests by requiring physicians to enter in restrictive covenants, and physicians want to ensure they have options and flexibility for future job opportunities. Restrictive covenants in physician employment agreements are routinely applied and enforced under Georgia law and physicians should not presume that their non-compete provision is too broad, too long or covers too large of a territorial area without a thorough review of the proposed employment agreement and seeking advice from counsel. These types of critical issues should be discussed and addressed at the beginning of negotiations between the physician and the hospital or medical practice to avoid unnecessary disputes and pitfalls down the road.