Health Care Legal Update

Healthcare Alert: Changes to Noncompete Law

                 
By:  Mark Cunningham            By:  Doug Griswold

Over the last five years, healthcare providers have been forced to stay on their toes to adjust to Tennessee's ever-changing noncompete laws.  On almost an annual basis, the state’s courts and legislature have enacted fundamental changes to the way healthcare providers do business in the state of Tennessee. 

On April 30, 2010, this trend continued when Governor Phil Bredesen signed into law an amendment to Tennessee’s healthcare noncompete statute (Tenn. Code Ann. § 63-1-148).  Practically speaking, the new amendment permits employers to impose post-termination employment restrictions on long-term employees who were previously exempt from the restrictions of Tennessee’s noncompete law.  Prior to this amendment, noncompete restrictions were not binding on providers who had been employed by, or under contract with, their employer or contracting entity for at least six years.

The amendment allows for the terms of provider noncompete covenants to be extended beyond the initial six year employment period for additional periods of up to six years, upon the mutual agreement of the contracting parties.  Moreover, the parties may agree to an unlimited number of extensions so long as:

• the extension is in writing
• is supported by consideration
• does not exceed a six year term.

It should be noted, however, that the new law does not appear to allow any such extension to be made through an automatic renewal provision in the employment contract and that the refusal to extend the noncompete period beyond the six year threshold may not be grounds for terminating the underlying employment contract.

This amendment has the potential to significantly affect how provider employment agreements are negotiated, particularly with respect to those providers who have been employed by the same entity for six years or more.  Furthermore, the amendment will create some challenging business decisions for employers if their provider employees elect not to sign any contracts or extensions designed to take advantage of the new provisions.  In light of these and other concerns, we would advise both employers and providers to review their current employment agreements and relationships to determine how they should respond to this significant legal development.

If you have any questions about the new amendment to Tennessee’s provider noncompete law and would like to discuss how it may affect your existing employment arrangements, please do not hesitate to contact one of the members of our Health Care Section.