By Natalya Belonozhko, Horenstein Law Group PLLC
December 9, 2019
In light of Washington’s recent law taking effect on January 1, 2020, which places constraints on the use of non-compete agreements, covered under a previous HLG blog, health care providers are faced with evaluating their non-compete agreements for compliance with the new requirements.
Generally, under Washington law, non-competes are enforceable if they are “reasonable.” Reasonableness is determined by considering if:
(a) necessary to protect the employer’s business or goodwill (patients and referral sources)
(b) the restrictions are not more than reasonably necessary to protect the employer’s business or goodwill
(c) the degree of injury to the public because of the loss of service and skill of the physician is relatively small in comparison to the injury to the employer if the non-compete is not enforced.
Overly broad mile radius restrictions, lengthy time periods, and broad restricted practice areas in non-compete agreements are not enforced by courts.
In a 2015 case involving a cardiologist, a court modified a non-compete preventing the cardiologist from practicing cardiac medicine in Pierce County, Washington, for five years to a two-mile radius from each clinic for four years. However, the ruling allowed the cardiologist to practice at hospitals, urgent care clinics, make house calls and treat the clinic’s patients, although the cardiologist could not solicit the patients.
The takeaway from the case is that the terms of non-compete agreements with health care practitioners should be limited to a geographical area, time period and practice area that does not disrupt continuation of care and limit access to care to a degree that causes public injury.
Health care providers should consider carve-outs in the practice area for urgent care, and hospitals and should limit the time period to 18 months (as discussed below).
As detailed in the previous HLG blog, under the new law, non-competes must be supported by independent consideration and must meet compensation thresholds (over $100,000 per year for employees and over $250,000 per year for independent contractors, adjusted annually for inflation) to be enforceable. Non-competes with a term longer than 18 months are considered not to be enforceable unless an employer proves that a longer time period is necessary. Also, non-competes may not be enforced against employees who are laid off unless the employer pays the employee their base salary following the lay off for the time period during which the non-compete is enforceable.
The requirements apply to existing agreements and agreements entered into as of January 1, 2020. Under the new law, enforcing a non-compliant agreement creates a cause of action by the employee or independent contractor and subjects the employer to statutory damages and attorney’s fees.
If a court modifies a non-compete or enforces a non-compete partially due to non-compliance with the new law, the employer is still liable for statutory damages and attorney’s fees.
For existing non-compete agreements that do not meet the requirements under the new law, health care providers may choose to not enforce the agreement to avoid liability under the new law. Employers can still enforce non-solicitation and confidentiality agreements with practitioners.
Employers may also partially waive terms of a non-compete that are not compliant with the new law or enter into a revised and compliant agreement if supported by independent consideration such as a pay raise, bonus or a fixed term of employment.
Non-compete agreements entered into on or after January 1, 2020 need to be evaluated carefully for compliance. Standard forms of non-compete agreements used by health care providers may need to be revised.
Health care providers should carefully review all existing non-competition agreements for enforceability under the new law and revise any non-compete templates to ensure that agreements entered into with health care practitioners in the future contain reasonable restraints and can be enforced.
This article is intended as a summary only. For additional details on how the new law may affect the enforcement of a non-competition agreement, please contact Natalya Belonozhko at firstname.lastname@example.org.