Do All Physician Non-Competes in Texas Require a Buyout Provision?

December 29, 2016 / By Robert Wood

physician-noncompete-texas-buyout-required Under Texas law, non-compete agreements involving a physician in some situations must include a handful of provisions (“requirements”) in order for the non-compete to be enforceable.  One such requirement is that a physician non-compete agreement must contain a buyout provision

When must a buyout provision be included?

Are requirements like buyout provisions required in all non-competes involving a physician, are they required only when the non-compete deals with the physician’s practice of medicine, or is there some other line that separates when the requirements must be included?

A recent Tyler Court of Appeals decision shed light on when exactly those requirements exist.  The case discusses the 2001 version of Tex. Bus. and Comm. Code sec. 15.50 (the law governing non-competes) and its 2009 amendment.  The 2001 version stated:

(b) A covenant not to compete is enforceable against a person licensed as a physician by the Texas Board of Medical Examiners if such covenant complies with the following requirements:

The 2009 amendment states, as follows:

(b) 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:

. . .

(c) Subsection (b) does not apply to a physician’s business ownership interest in a licensed hospital or licensed ambulatory surgical center. (emphasis added).

In the Tyler Court of Appeals case, two physicians had entered into a noncompetition agreement with an ambulatory surgical center (“ASC”) in 2002, and several years later they decided to open up an ASC of their own.  The two physicians brought action to declare that their non-competes were unenforceable due to the lack of buy-out provision.  The employer ASC contended, however, that the non-compete did not need a buy-out provision because it did not affect the physicians’ practice of medicine, but rather related to a business ownership interest.

Reviewing the two versions of the statute and the legislative history, the court found that the 2001 version of the non-compete statute relates to any non-compete involving a physician, no matter if the non-compete restricted the physician from having an ownership interest in a business or from the mere practice of medicine.  This means that, under the 2001 statute, if you are a physician and have signed a non-compete, that non-compete is only enforceable if it meets the statutory requirements (including a buy-out provision).

But the court found that the result under the 2009 amendment would be different.  As seen above, the 2009 amendment adds to subsection (b), “relating to the practice of medicine,” and it also adds subsection (c) which excludes physician’s business ownership interests in licensed hospitals and licensed ASCs from the physician non-compete requirements.  While the Tyler Court of Appeals did not address the extent to which the 2009 amendment limits Tex. Bus. and Comm. Code sec. 15.50’s applicability to noncompetition agreements involving physicians, it is clear from subsection (c) that the requirements for physician non-competes do not apply to a physician’s ownership interest in a hospital or an ASC.

So the question becomes, which version applies to you.  The answer to this is simple, when did you enter into your non-compete?  When passing the 2009 amendment, the legislature commented that the statute “applies only to a covenant entered into on or after [September 1, 2009].”  So, if a physician signs a non-compete before September 1, 2009, then all of the requirements must be met no matter if it only restricts the physician from having an ownership interest in a business or if it restricts him or her from the practice of medicine.  If a physician signs the agreement after September 1, 2009, then the physician may not get the protections the requirements provide if he is being restricted from owning a business.

If you have a question about your non-compete agreement, call us.

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About the Author

Robert Wood has been a Texas trial lawyer since 1993. During that time, he has represented small, mid-sized, and Fortune 100 companies in business and employment litigation matters all over Texas and the United States. He has also advised and represented hundreds of individuals in employment litigation matters. Read more about Robert Wood