Patients v. Profits: Balancing Competing Interests in Physician Non-compete Agreements

Non-compete agreements are enforceable against physicians, but there are limits. As noted by the American Medical Association (AMA), “temporal and geographic reasonableness, the legitimacy of business interests involved, patient demographics, physician specialty, and public policy considerations such as patient choice may vary significantly from one case to another [making it] difficult to draw general principles with respect to physician non-competes.” (Letter to Federal Trade Commission, February 7, 2020, p.4.)

In this article, we present some considerations for drafting or attempting to enforce non-compete agreements with physicians. However, this area of law is highly fact-specific, and this summary is not intended to be comprehensive. Additionally, the analysis for independent contractors could vary greatly from that of employees, presented below.

General enforceability

• As a matter of common law, non-compete agreements are enforceable only if they are reasonable as to geographic, temporal, and scope of work limitations and impose a restraint that is not greater than necessary for the protection of the employer.
• To be enforceable, a non-compete agreement must strike a balance between a physician’s right to practice in his or her chosen profession and the employer’s right to contract.
• As a matter of public policy, the court would probably (though not necessarily) be less likely to enforce a non-compete agreement against a physician where—as in much of Nevada—there is a shortage of physicians generally or a shortage of physicians in a certain specialty (see Ellis v. McDaniel, 95 Nev. 455 (1979)).
• Of consideration for physicians entering into non-compete agreements, Nevada’s peculiar demographics focused in Las Vegas and Reno bring heightened significance to geographic restrictions. For example, a non-compete range around one or more locations within Las Vegas could conceivably force the physician to relocate his or her practice beyond Clark County to Northern Nevada or even out-of-state, requiring a new medical license.

Sources of law

There are two key starting points for any analysis of a non-compete agreement under Nevada law:

• In 2016, the Supreme Court of Nevada in Golden Road Motor Inn, Inc. v Islam (132 Nev. 476) held that an overbroad employee non-compete agreement is wholly unenforceable and a district court cannot, on its own, revise its provisions (so-called “blue-penciling”) to render it enforceable.
• In response, the Nevada Legislature amended NRS Chapter 613 in 2017 to require the court to revise an otherwise unreasonable non-compete agreement “to the extent necessary and enforce the covenant as revised” (NRS 613.195).

Retroactivity of blue-penciling

• Despite NRS 613.195’s blue-pencil requirement, a non-compete agreement entered into before June 3, 2017 may be immune from retroactive effect of the statute and Golden Road would most likely govern the court’s enforcement of its provisions (see United States Anesthesia v. Devin Chern Tang, 2019 Nev. Dist. LEXIS 262).
• However, most recently the Supreme Court of Nevada held that Golden Road does not prohibit blue-penciling of an otherwise unenforceable non-compete agreement pre-dating NRS 613.195 which includes a provision authorizing the court to blue-pencil (see Duong v. Fielden Hanson Isaacs Miyada Robison Yeh, Ltd., 136 Nev. Adv. Op. 87 (2020)).

The bottom line is, whether drafting, defending, or attempting to enforce a non-compete against an employee physician, one needs to be cognizant of the reasonability—and thus enforceability—of the agreement’s geographic, specialty, and temporal restrictions. Any noncompete agreement governed by Nevada law executed post-NRS 613.195 is subject to blue-penciling at the court’s discretion, rather than being deemed wholly unenforceable.

About the authors

Matthew T. Dushoff, Esq. is a shareholder at Saltzman Mugan Dushoff practicing in the area of complex business litigation and administrative law.

Bridget Kelly, Esq. is an attorney with Nutile Law, practicing in the areas of corporate and administrative law with a healthcare focus.