Many professionals, especially those in health care, assume that non-competes are not enforceable, a misconception that can have costly consequences. In this case study, a physician dismissed non-competes as mere “legal fluff” and signed an Employment Agreement without much concern. He quickly learned the costly legal repercussions when he tried to leave the practice. This case study underscores how common assumptions about non-competes can be misleading, and why understanding their enforceability and associated risks is crucial to protecting your interests.
The Case of Dr. Regret and a Non-Compete Agreement
Dr. Regret, a well-trained dermatologist, dreamed of one day relocating his family to Houston, Texas, and launching his own practice. To first build capital and stability, he accepted a position with a large private equity-backed dermatology group, Dermatology Worldwide. His Physician Employment Agreement was presented as a “take-it-or-leave-it” contract that included a strict non-compete stating that he would be barred from practicing within 60 miles of any Dermatology Worldwide location for three years post termination. The non-compete also included a buyout clause, requiring him to pay twice his base salary if he wanted to break the non-compete restriction.
Despite the strict terms of the non-compete, Dr. Regret signed the agreement without seeking legal review. He instead relied on advice from a friend in California, who told him, “Non-competes are not enforceable.” He assumed this applied to his state of Texas as well, overlooking the fact that enforceability of non-competes varies by state. Unlike California, Texas allows properly drafted non-compete clauses under certain conditions. Over time, Dr. Regret’s plans evolved, and he decided to leave Dermatology Worldwide to open his own practice, not far from an existing Dermatology Worldwide location. Unaware of the potential consequences of the non-compete he had signed, he gave notice and moved forward with this next chapter in his career.
Risks of Violating a Physician Non-Compete Agreements
Unsurprisingly, Dermatology Worldwide sued Dr. Regret for violating the distance requirements of his non-compete. Dr. Regret had to hire litigation counsel and battle over the original non-compete. The court found the 60-mile and three-year restriction of his original contract to be unreasonable.
However, rather than striking the entire clause, the court downscaled it to 20 miles and two years under the contract’s reformation clause. In the end, Dr. Regret spent close to $100,000 litigating just to have his non-compete survive. Unfortunately, the challenges did not end there. Since Dr. Regret had already committed to a long-term lease just 10 miles from his former employer, the revised non-compete still left him trapped in a difficult position. To free himself of the restriction completely, he borrowed funds to pay the full $600,000 non-compete buyout, meaning his total financial cost to leave came to roughly $700,000. The emotional toll was significantly more costly.
Legal Takeaways for Non-Competes in Physician Employment Agreements
Physician contracts are more than just paperwork, they are binding agreements that can shape a career trajectory, financial stability, and legal exposure. Whether you are entering a new role or renegotiating terms, understanding the legal nuances is important. Below are key takeaways to help physicians protect their interests and avoid common pitfalls when reviewing and negotiating Employment Agreements.
Beware of Broad Generalities
Do not rely on statements like “non-competes are unenforceable” because enforcement depends heavily on your state and contract terms.
Always Get Agreements Reviewed
Especially when your livelihood is on the line, legal counsel is not optional. Seek real-time advice on the status of non-competes in your state. Non-compete law is in a particularly dynamic time, where state laws are constantly evolving. In fact, since this story occurred, Texas non-compete laws have statutorily changed for physicians and other health care providers.
Negotiate the Restrictions
Before executing the agreement, see if the practice is willing to narrow the geographic area or time frame of the restriction. Giving you more flexibility in the future.
Negotiate Exit Paths
Ask for buyouts, carve-outs, or liquidity events up front, especially if your plan is to stay in the area if things do not work out.
Prepare for Litigation Risk
Even if you believe your non-compete is weak or unenforceable, you might be forced to defend it, so understand your risk by connecting with the right resources.
How Proactive Legal Review Could Have Prevented a Costly Legal Battle
Despite the costly battle, Dr. Regret survived. Unfortunately for Dr. Regret, ByrdAdatto was not involved before he signed the strict non-compete agreement. Had he engaged ByrdAdatto in the beginning, our team would have reviewed the employment contract, flagged the unenforceable or high-risk terms, and negotiated more reasonable geographic, time, and buyout provisions. That proactive step could have saved him hundreds of thousands of dollars and years of professional frustration.
Once the dust settled, he turned to ByrdAdatto for guidance in establishing a thriving practice. By shifting from reactive litigation to proactive planning, Dr. Regret transformed a costly mistake into a sustainable foundation for growth.
Avoid Costly Non-Compete Mistakes with ByrdAdatto
If you are reviewing an employment contract or facing a restrictive covenant, it is essential to seek legal advice early. Our legal team helps physicians and health care professionals evaluate the enforceability of non-compete provisions, negotiate reasonable terms, and protect their right to practice and expand. Contact ByrdAdatto today to safeguard your career, avoid costly disputes, and position your practice for long-term success.
