Requirements for Physician Noncompetes Strictly Enforced

 An opinion by the Dallas Court of Appeals shows how the courts apply the Texas Noncompete statute to covenants involving physicians.  

In the opinion, a surgery center was registered as a limited partnership. The general partner was a corporation, and the limited partners were physicians. The partnership agreement prohibited the limited partners from owning an interest in a competing facility while being a limited partner.

Nine of the physicians began discussing the purchase of land to build a new facility. The physicians entered into a contract to do so. They determined that construction of the new facility would take 18 months, and the physicians intended to stay with the surgery center during that time.   The corporation requested to be part of the new facility, and the physicians denied the request.  The attorney for the corporation threatened to sue the physicians for violating their noncompete agreements.  The physicians filed suit, requesting declaratory relief that the noncompete agreement was not enforceable. The physicians then filed a motion for summary judgment, which was granted. The corporation appealed.

On appeal, the corporation contended that the trial court erred in applying the statute which requires a physician noncompete agreement to contain a buyout provision. The corporation argued that the statute did not apply because the covenant did not affect the physicians’ practice of medicine.

Section 15.50(b) of the Texas Business and Commerce Code provides:

A covenant not to compete relating to the practice of medicine is enforceable against a person licensed as a physician by the Texas Medical Board if such covenant complies with the following requirements:

(1) the covenant must:

(A) not deny the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;

(B) provide access to medical records of the physician's patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code; and

(C) provide that any access to a list of patients or to patients' medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained except by mutual consent of the parties to the contract;

(2) 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 the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and

(3) the covenant must provide that the physician will not be prohibited from providing continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

The court, based upon the plain language of the statute, held that since the physicians were licensed by the Texas State Board of Medical Examiners, the covenant not to compete had to include a buyout provision. The covenant did not include a buyout provision; therefore, it was unenforceable against the physicians.

As this opinion demonstrates, requirements applicable to covenants not to compete must be strictly observed.   Failure to do so may result in a covenant not being enforceable. 

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