Lawyer for Physicians, Medical
Corporations and Group Medical Practices
May a physician compete against his or her
former practice?
In this suite of articles, I explain the basic
corporate, business and contract law issues for medical
corporations and group medical practices in California.
I explain things from both sides, that is, the perspectives
of both the individual physician and the group practice.
The articles in this suite are:
If you are in a group medical practice,
you might wonder, “Can I or another doctor in this practice
set up a competing practice?” “Will a non-competition
agreement prevent it?”
These questions are crucial both to the existing
group and the physician who would set up the competing
practice.
In this article I give a brief roadmap of
the issues relevant to when a physician sets up a competing
practice. I give legal and common-sense advice to all
concerned parties. The issue is important because, when a
physician leaves a group to set up a competing practice,
invariably the former group is unhappy and litigation is a
real threat.
The contract might not be worth the paper
it’s written on.
After termination of employment (see
Termination clauses in physician employment and
contractor agreements), a
contractual non-competition clause usually is
unenforceable. Under California law, a physician ordinarily
may compete with his or her prior practice or group, even if
the physician signed an agreement that prohibits
competition. Of course, there are exceptions to this rule.
In relevant part, a non-competition clause can be
enforceable if it was (i) entered into as part of the sale
of a practice; or (ii) entered into pursuant to a
partnership agreement or shareholders agreement that
prohibits a withdrawing doctor’s competition in a limited
geographic area.
Who gets the patients or referral sources?
Although a non-competition agreement
usually is unenforceable, the departing doctor still may not
engage in unfair competition. Unfair competition includes
the use of confidential information and trade secrets of the
practice, including for example lists of patients or
referral sources. In general, the law prohibits a doctor
from using data from the practice, but only if the following
two elements exist: (i) the data is a trade secret;
and (ii) the doctor misappropriates the data.
As to the first element, given current
HIPAA restrictions, usually we can assume that a patient
list is a trade secret.
Referral sources require an analysis of the facts and
circumstances to determine whether they are trade secrets.
As to the second element, once the
practice or group has proven that the data at issue is a
trade secret, it then must prove that the doctor
misappropriated
(stole) the data. California courts look to whether the
departing doctor actually solicited the group’s patients or
referral sources, as opposed to merely announcing a change
in professional affiliation. In other words, the physician
may announce his or her new status, but may go no further.
The distinction between solicitation and mere announcement
is a shifting line, however, and the departing doctor must
take great care not to cross it.
California law for physicians makes the
issue even more complex and contradictory because it also
requires that the departing physician announce his or her
departure to existing patients. A departing doctor may not
abandon a patient without written notice to the patient. To
date, no court has addressed this issue.
For more information on this topic, see Article 9,
Leaving
a medical practice / closing a medical practice.
Who gets the employees?
The rule for the solicitation of office
managers, nurses, technicians and other employees is similar
to the rule for the solicitation of patients. A departing
doctor may not solicit or ask the employees to leave the
former group. Rather, the departing doctor may only
announce the move. The doctor must then back off, and
permit the employees to initiate the next contact – by
requesting to join the departing doctor in the competing
practice.
Finally, please keep in mind that the law
of competition is by its nature fluid and gray. There are
few hard and fast rules, and no guarantees can be given on
the outcome of any particular dispute. Moreover, the costs
of litigation (let alone losing in litigation) are such that
one does best to avoid it altogether. Use your
common-sense, and above all, act in a decent and fair
manner. Courts try to protect the good guys in a dispute,
so be that person.
This article only gives a short roadmap of
the issues raised by a departing physician’s competition
with his or her former group or employer. There is a lot
more to this subject than introduced here. Before you do
anything, get competent legal counsel to help you.
Call me to schedule a
legal consultation: 510-796-9144
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