Navigating Noncompete Carve-Outs in Employment Agreements: Key Considerations for Health Care Providers
Health care providers such as physicians, nurse practitioners and physician assistants often seek to expand their professional engagement beyond their primary employment. Whether through serving as an expert witness, holding an academic position, owning a medspa or engaging in similar roles, activities outside standard full-time employment can enhance career satisfaction, expertise and income. However, employment agreements with hospitals, clinics or large health systems frequently include restrictive covenants that could inhibit a provider in pursuing his or her professional ambitions – the threat of being terminated for not devoting “full efforts” to his or her position can be an intimidating proposition. Approaching negotiations concerning exceptions, or “carve-outs,” to these restrictions in a skilled, considered manner is crucial, especially when bargaining power is uneven.
Noncompete clauses, moonlighting policies and exclusivity requirements designed to protect the employer’s interests, such as patient retention and resource allocation, are at the heart of these discussions. For instance, a standard contract might prohibit any competitive activities within a certain radius during, and for a period extending after, employment with a particular entity. Providers must analyze how their desired outside activities fit into this framework. Medspa ownership, for example, might conflict with aesthetic services offered by the employer, while expert witness work could raise concerns about time commitment or conflicts of interest. Academic roles, like teaching or research, often involve time or schedule demands that employers view warily.
When negotiating carve-outs, providers should consider tailoring them to minimize perceived threats to, or conflicts with, the employer. Broadly, these exceptions can be framed around factors like geography (e.g., limiting activities to areas outside the employee’s primary workplace or the employer’s service area), activity type or specialty (e.g., distinguishing non-clinical consulting from direct patient care) or time allocation (e.g., capping hours per week or month). Specifically-defined exception or carve-out structures can make proposals more palatable, but require precisely tailored language to eliminate potential ambiguities that could lead to future disputes.
That said, securing favorable terms isn’t straightforward. In scenarios where the employer is a large health system or in which the job is the provider’s main income source, leverage is often limited. Employers may resist carve-outs, citing risks to their operations or fearing divided loyalties. Here, skillful negotiation becomes essential, and may include strategies such as offering to accept a different compensation package in exchange for greater flexibility, or demonstrating that outside roles will indirectly benefit the employer through enhanced expertise.
Providers must also weigh long-term implications, including post-employment restrictions that could extend for years. State laws vary; some jurisdictions scrutinize noncompetes more stringently in health care due to public access concerns, but enforcement remains a reality. For example, recent legislation in Pennsylvania has extended restrictions on noncompetes for certain health care practitioners. Similarly, Maryland implemented bans on noncompetes affecting health care professionals earning under a certain threshold. When recruiting physicians, compliance with laws, like the Stark Law, also influences noncompete terms. Additionally, the employee and employer must consider the scope of liability coverage – it is highly unlikely that the employer will allow its malpractice insurance to extend to outside activities.
Ultimately, activities outside of a provider’s primary employment may offer a pathway to professional fulfillment and additional earnings; however, they underscore the importance of a considered, strategic approach to negotiating an employment agreement and specified carve-outs. By approaching negotiations thoughtfully, providers can strike a balance that supports both their ambitions and their employer’s needs.
