Physician Non-Competition Agreements

By: Jason B. Nichols & Elizabeth M. Carmody

Louisiana’s legislature and courts currently allow non-competition agreements in physician employment contracts.  Because non-competition agreements are disfavored in Louisiana, their terms must strictly comply with the governing law, La. R.S. 23:921.  Pursuant to that statute, an employee non-competition agreement is valid, provided that (i) it is limited to a maximum of two years from the employee’s termination date and (ii) it only applies to those geographic areas where the employer actually conducts its business.  Independent contractors can be subject to similarly limited non-competition agreements.

In 2001, in SWAT 24 Shreveport Bossier, Inc. v. Bond, the Louisiana Supreme Court in dicta questioned the enforceability of physician non-competition agreements, reasoning that it would be “absurd” under the wording of La. R.S. 23:921 if a doctor employed by a regional hospital were prevented under a non-competition agreement from practicing medicine in any capacity in the region for two years following his or her termination.  With that in mind, the court narrowly interpreted the statute’s prohibition against “carrying on or engaging in a business similar to that of the employer” only to prohibit a terminated employee from establishing his or her own competing business, not from going to work as an employee of a competitor.  In 2003, the Legislature effectively overruled SWAT 24’s narrow interpretation of that prohibition by amending La. R.S. 23:921 to specifically apply to persons “who become employed by a competing business.”  Subsequent Louisiana cases have enforced properly drafted non-competition agreements against physician employees.

The American Medical Association has long been opposed to physician non- competition agreements.  AMA Code of Ethics § 9.02 discourages any agreement “which restricts the right of a physician to practice medicine for a specified period of time or in a specified area” after the termination of employment and recognizes that these agreements “disrupt the continuity of care, and potentially deprive the public of medical services.”  In line with the AMA’s guidelines, several states, including Massachusetts, Colorado, Oregon, Tennessee, Delaware, and Texas, have enacted statutes prohibiting or limiting physician non-competition agreements.

In Louisiana, like most states, lawyers are prohibited from entering into non-competition agreements.  According to the American Bar Association, this practice was established because allowing non-competition agreements in the legal profession “limits the freedom of clients to choose a lawyer.”  Louisiana law limits non-competition agreements for “automobile salesman” and “real estate brokers,” but does not afford the same protections to physicians.  As recognized by the AMA, physician non-competition agreements can limit the freedom of a patient to choose his or her doctor.  On the other hand, physician employers maintain that their investment in marketing, training, and equipping physicians warrants limited non-competition provisions.  Has the time come for the Legislature to re-visit physician non-competition agreements in Louisiana?