Pennsylvania Enacts the Fair Contracting for Health Care Practitioners Act Limiting the Use of Noncompete Covenants for Certain Health Care Practitioners
Although Pennsylvania lawmakers may not be as antagonistic towards employment noncompetition agreements as other states and the Biden Administration, this summer, Governor Josh Shapiro signed into law the Fair Contracting for Health Care Practitioners Act (the Act), which will prohibit specific noncompete covenants entered into by health care practitioners and employers effective January 1, 2025.
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It is part of the broader trend toward prohibiting or restricting the use of noncompete agreements.
The Act applies only to licensed medical doctors, osteopaths, nurse anesthetists, registered nurse practitioners and physician assistants. The term “noncompete covenant” is broadly defined to capture not only agreements that explicitly prohibit competition but also agreements that may have “the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients.”
The Act provides that any noncompete covenants greater than one year in length, entered into after the Act’s effective date, are void and unenforceable by an employer. A noncompete covenant for a period of one year or less may be enforceable provided the health care practitioner terminated the employment relationship. If the employer terminated the relationship, even noncompete restrictions for less than one year will be unenforceable. Not all noncompete covenants are impacted by the Act. Noncompete covenants remain lawful and enforceable concerning: (1) the sale of a health care practitioner’s ownership interest in a business entity, (2) the sale of all or substantially all of the assets of the business entity, (3) transactions resulting in the sale, transfer or change in control of the business entity, or (4) an ownership interest in the business entity.
Under the Act, an employer still is authorized to enforce a contract provision permitting the employer to recover reasonable expenses from a health care practitioner if the health care practitioner resigns, provided the expenses: (1) are directly attributable to the health care practitioner and accrued within three years before a separation when the health care practitioner was not dismissed by the employer; (2) are related to relocations, training and the establishment of a patient base; and (3) are amortized over a period of up to five years from the date of separation by the health care practitioner.
Further, the Act outlines patient notification requirements which apply to patients with whom a health care practitioner maintained an ongoing outpatient relationship for two or more years and where the health care practitioner saw the patient within the preceding year. In these instances, within 90 days of a health care practitioner’s departure, an employer must inform the patient that: (1) the health care practitioner is no longer employed by the employer; (2) the patient may receive health care either from the departed practitioner or another practitioner, including information on how to transfer patient records; and (3) the patient may be assigned to another health care practitioner within the employer.
Employers of health care practitioners must take note of the Act particularly as of January 1, 2025, and ensure that after that date, they know whether they are entering into a “noncompete covenant” that may be unenforceable under certain circumstances. In addition, even employers of health care practitioners who will have already signed a “noncompete covenant” by January 1, 2025, should consider whether the Act could impact whether a court, sitting in equity, will be influenced by the policies that motivated the Act. Such policies include: (1) promoting competition that benefits employees and patients and encourages health care practitioners to work in Pennsylvania; (2) providing continuity of care to patients; (3) reducing noncompete constraints on health care providers, including less freedom of practice due to a fear of losing employment and being unable to work in the profession; and (4) addressing noncompete covenants in connection with consolidated hospital systems which cover broad geographic regions and can prevent health care practitioners from seeking work in large areas, far beyond their initial place of employment. Regardless, employers of health care practitioners who are bound by or who the employer wants to bind by a noncompete covenant should consult experienced employment law counsel about the enforceability of that covenant as written.
Co-author Lee Moylan is chair of the firm’s labor & employment practice group and co-author C. Quincy Conrad is an associate in the Litigation Department at Klehr Harrison