The Strict Texas Physician Non-Compete Agreement

February 10, 2015

Employers will routinely use a non-compete agreement in their employment agreements to protect the employers’ goodwill and prohibit former employees from competing with their business interests. With regard to the medical profession, Texas has adopted specific requirements to create a non-compete agreement enforceable against physicians. However, as discussed in a recent decision by the Fourteenth Court of Appeals, if one component of a physician’s non-compete agreement is omitted, it will be detrimental to the covenant’s enforceability. See LasikPlus of Texas, P.C. v. Mattioli.

In 2003, Dr. Mattioli, an ophthalmologist, entered into an employment agreement with LasikPlus to provide laser eye surgery services. The employment agreement contained a non-compete agreement with various limitations; however, the provision was lacking a buy-out clause. Once Dr. Mattioli terminated his employment, LasikPlus sought an injunction to prevent Dr. Mattioli from opening a new clinic less than two miles from the LasikPlus office. Agreeing with the trial court, the Fourteenth Court of Appeals denied the injunction stating that “if a noncompete covenant involving a physician does not have a buy-out clause, it is not enforceable.”

Texas Business and Commerce Code §15.05(b) clearly outlines the requirements for a non-compete agreement to be enforceable against a physician, and in relevant part states: 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 case of an inability to agree, an arbitrator of the court whose decisions shall be binding on the parties.

LasikPlus conceded that their employment agreement did not contain a covenant buy-out clause, but requested the court reform the covenant to comply with Texas law. Even though Texas courts have the ability to reform an overly broad or unreasonable non-compete agreement, the court in the Mattioli case stated that the legislature did not intend to “invest courts or arbitrators with the authority to reform non-compete covenants to create buy-out provisions.” Thus, if a physician’s non-compete agreement does not meet the statutory requirements of §15.05(b), a court will not have the power to reform or rewrite the otherwise unenforceable covenant.  The non-compete landscape is continually changing and it is imperative to be cognizant of all current laws and judicial decisions when drafting these provisions. In Texas, the legislature has given a specific statutory framework for drafting a non-compete agreement enforceable against physicians. Failure to strictly follow these requirements will render the covenant unenforceable and leave employers vulnerable to immediate competition from their previous employees.

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ByrdAdatto founding partner Michael Byrd

Michael S. Byrd

As the son of a doctor and entrepreneur, ByrdAdatto attorney Michael S. Byrd has a personal connection to both business and medicine.

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