Physicians who want non-compete clauses in their employment agreements should be wary of the specific enforceability requirements found in the Texas Commerce Code.  The Code could thwart the intentions of the employer if the covenant not to compete is not carefully drafted.

Texas Commerce Code § 15.50 governs the enforceability of non-compete covenants. To be enforceable, the covenant must contain reasonable limitations as to time, geographical area, and scope of activity.  Additionally, the covenant must be ancillary to or part of another enforceable agreement, and the limitations cannot impose a restraint that is greater than necessary to protect business interests.

To enforce a non-compete covenant against a physician, however, the statute creates additional requirements.  In addition to complying with the above threshold elements, a covenant restricting a physician must also meet the following physician-specific requirements:

  • The covenant must not deny the departing physician access to patient lists covering a specific period of time;
  • The covenant must provide the physician with access to patient records, subject to patient authorization and other requirements;
  • The covenant must also provide a buyout provision enabling the departing physician to buyout the covenant; and
  • The covenant must give the physician access to certain acute patients.

There is a very narrow exception to the four physician-specific requirements outlined above.  The exception applies in the context of a physician investor who owns a business interest in a licensed hospital or in an ambulatory surgical center.  In those scenarios, the covenant is enforceable against the departing physician without the physician-specific statutory requirements.

There is a strong argument that the exception should be broader and should cover many other forms of investments where the investor physician does not treat patients, such as therapy centers and E.R. facilities.  Nonetheless, the Code draws a distinction between different types of investments (licensed hospitals and ambulatory surgery centers, and other investments), and while the exception makes sense, it is narrow and its scope will likely be litigated in court.

The complexity of the non-compete Texas statute is patent and covenants not to compete should be carefully drafted.  Physicians should be aware of the statutory requirements when entering into employment agreements, and should seek competent counsel to review and draft their employment agreements to ensure that their business is properly protected.

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