Reprinted with permission from the February 24th edition of The Legal Intelligencer. (c) 2025 ALM Media Properties. Further duplication without permission is prohibited.
Effective January 1, 2025, health care practitioners will enjoy protection from enforcement of non-competition clauses in their employment contracts pursuant to the Fair Contracting for Health Care Practitioners Act, 35 P.S. § 10321, et seq. The Act renders certain restrictions on post-termination competition by health care practitioners void as against public policy and unenforceable. 35 P.S. § 10324. Pennsylvania joins other states in enacting these protections for health care providers.
Prior to this legislation, Pennsylvania courts have exercised caution in enforcing non-competition restrictions on physicians. The case law requires courts to look to whether there are enough physicians practicing in the restricted area when analyzing whether the public interest weighs against enforcement of a noncompete through an injunction. See e.g., WellSpan Health v. Bayliss, 869 A.3d 990, 1000 (Pa. Super. 2005). Pennsylvania law recognizes the effect on patients in need of the physician’s services as “paramount” in the balancing test relating to the enforceability of a non-compete. Id. This Act goes further, with some limited exceptions, by imposing an outright ban on noncompetes executed after January 1, 2025 where the healthcare practitioner employee is terminated by the employer.
By its language, the Act applies to medical doctors, osteopaths, certified registered nurse anesthetists, certified registered nurse practitioners and physician assistants. 35 P.S. § 10323, The Act, specifically defines a “noncompete covenant” as an agreement between the employer and health care practitioner “in this Commonwealth” which “has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients, either practicing independently or in the employment of a competing employer after a term of employment.” Id. For those identified health care practitioners, a noncompete covenant entered into after January 1, 2025 is “deemed contrary to the public policy and is void and unenforceable by an employer. 35 P.S. § 10324(a).
The Act excludes from the ban a noncompete covenant that is no more than one year, but only if the health care practitioner “was not dismissed by the employer.” 35 P.S. § 10324(b). The Act specifically does not apply to a noncompete covenant related to the health care practitioner’s ownership interest in a business entity. §10324(c)(2). The Act permits, but imposes some restrictions on, agreements that allow employers to recover expenses related to relocation, training and establishment of a patient base. § 10324(c)(1).
Ambiguities exist in the language of the Act. First, the definition of a “noncompete covenant” is broad enough to include patient non-solicitation or no-contact provisions. The Act does attempt to address that in a number of ways. Section 10335 requires that, within ninety days of the health care practitioner’s departure, the employer must notify any patient seen by the practitioner within the last year of the practitioner’s departure, how to reach the practitioner, and that the patient may be assigned to a new health care practitioner if the patient chooses to continue to receive care from the employer. The notification requirement only applies to patients with whom the practitioner has a relationship of two or more years. The Act declares “continuity of care” as a “fundamental public policy goal.” Given the stated purpose of the Act and the notification requirements, courts will likely disfavor patient non-solicitation or no-contact provisions, but there remains a question as to whether courts will permit agreements that require the practitioner to only contact patients as set forth in the Act.
Another ambiguity relates to the phrase “in this Commonwealth” in the definition of “noncompete covenant.” The legislation recognizes that 75% of physicians are employed by hospitals, healthcare systems or incorporated entities, and that consolidated hospital systems stretch over broad geographic areas. Many of those entities may seek to avoid the Act by reciting the application of, for example, New Jersey law. The language of the statute may very well negate such a choice of law provision.
There will always be the question of whether courts can rewrite non-conforming agreements under Pennsylvania’s case law permitting courts to “blue pencil” overbroad restrictions. This raises a drafting challenge: should employers continue to draft noncompete covenants more broadly, with an understanding that a court may limit the restrictions, or will court’s invalidate out of hand any covenant that does not strictly comply with the statute.
While the statute only applies to noncompete covenants in place after January 1, 2025, the Act also raises an important public policy argument for practitioners challenging agreements signed before the effective date. Surely, the “legislative intent” declared in the Act is evidence of a public policy that weighs against the enforcement of these restrictions.
In imposing this restriction on noncompete covenants for healthcare practitioners, Pennsylvania joins a legislative trend. In Illinois, after January 1, 2025, noncompetes for licensed professions who provided mental health service to veterans and first responders are unenforceable if they are likely to increase the cost or difficult for those individuals to seek those services. 820 ILCS 90/1 et seq. A similar ban exists for certain nursing professionals in Iowa (Iowa Code § 135Q.1-2), health care providers in Louisiana (La. Rev. Stat. Ann. § 23:921), for healthcare providers and veterinarians in Maryland (Md. Code, Lab & Empl. §3-716), and for nurses in Rhode Island (RI Gen. Law. § 28-59-1-3).
The Fair Contracting for Healthcare Practitioners Act will present a drafting and compliance challenge for employers and healthcare practitioners. Courts have yet to weigh in on its application where there are choice of law provisions, its application to non-solicitation and no-contact provisions, and the applicability of blue pencil rules. The Act may also present a challenge in enforcing agreements with health care practitioners entered into before its effective date. The Act represents a growing trend in restricting the application of non-compete covenants in order to foster healthy marketplace conditions and protect patients.
Patricia Collins is a Partner and Employment Law Chair with Antheil Maslow & MacMinn, LLP, based in Doylestown, PA. Her practice focuses primarily on employment law, commercial litigation and health care law. Patricia Collins can be contacted at 215.230.7500 ext. 126.