Connecticut employers will soon be rather limited in their options to enter into “non-compete” agreements with physicians. Public Act 16-95, An Act Concerning Matters Affecting Physicians and Hospitals, makes numerous changes affecting physicians and hospitals. The new legislation dramatically changes the law pertaining to covenants not to compete involving physicians. This portion of the legislation is effective July 1, 2016. The new legislation makes it so difficult to enforce a non-compete against a physician that some employers are likely to abandon their restrictive covenants altogether.
The new law applies to agreements that restrict the right of a licensed physician to practice medicine in any geographic area of the state for any period of time.” Covenants not to compete are void and unenforceable to the extent they exceed the provisions of this new statute. Remaining contract provisions remain in full force and effect. A covenant not to compete is also void if the employment or contractual relationship is terminated without good cause or the contract or agreement expires. (Note that the reference to “employment or contractual relationship” indicates that independent contractors would also be covered by this statute.)
As is standard for covenants not to compete, the statute prescribes that a covenant not to compete is valid only if:
- The covenant not to compete is necessary to protect a legitimate business interest;
- the geographic, time and other provisions of the covenant are necessary to protect such business interest; and
- the covenant not to compete is otherwise reasonable and not contrary to public policy.
Importantly, the statute prohibits covenants not to compete that “restrict the physician’s competitive activities (i) for a period of more than one year, or (ii) in a geographic region of more than fifteen miles from the primary site where such physician practices.” The “primary site where a physician practices” is defined as “the office, facility or location where a majority of the revenue derived from such physician’s services is generated.”
The law also limits the available remedies by explicitly prohibiting injunctive relief or specific enforcement, a common means of enforcing non-competition agreement. Instead, an aggrieved party may bring an action for damages, subject to neutral binding arbitration by a court-appointed arbitrator. Damages are limited to actual damages suffered. Further, the party seeking enforcement has the burden of proof, not just by a preponderance of the evidence, but by clear and convincing evidence: (1) that the covenant not to compete conforms to the requirements of this section, (2) that the covenant not to compete has been violated, and (3) the actual damages suffered. In addition, the bill states that the costs of the action shall be borne by the party bringing the action.
In light of the new legislation, all employers of physicians and physician-owned practices in Connecticut should carefully review the terms of their non-competition agreements, including “boilerplate” language. Further, consider keeping the term of the non-competition agreement less than one year or the radius at issue less than fifteen miles, avoiding the maximum restrictions, since the employer will be required to show by clear and convincing evidence that “the geographic, time and other provisions of the covenant are necessary” and defaulting to the maximum is likely not going to show a court that the provisions are truly necessary.
To the extent other restrictions, like non-solicitation, exist in the same agreement alongside non-competition language, be sure to apply these restrictive new terms only to the non-competition language; otherwise, employers are yielding even more rights.
The legal landscape is changing rapidly, and our team of labor and employment attorneys can help you navigate new and existing statutory requirements and can help you customize employment agreements and restrictive covenants to meet your unique needs.