Houston Appeals Court Finds That Failure to Include Buy-Out Clause in a Physician Non-Compete Makes It Unenforceable

A physician non-compete covenant is not enforceable if?

Physician non-compete agreements are a whole different animal. A medical or physician non-compete adds many additional requirements over those for general employee non-competes in Texas. The requirements are very specific. Employers must include a buy-out provision in a physician non-compete, even if negotiating the terms is contentious. 

On November 21, 2013, the Fourteenth Court of Appeals in Houston in LasikPlus of Texas, P.C., et al. v.Mattioli held that the non-compete in question failed to meet one of the requirements for enforceability in Texas, a provision for buy-out.  Because of this, it refused to impose a temporary restraining order prohibiting the former employee doctor from competing with his employer while the case progressed.

Texas statue has provided for some time that a non-compete agreement for a doctor must meet specific requirements.  Tex. Bus. Com. Code 15.50(b) sets out the requirements.  A non-compete cannot be enforced against a physician licensed by the Texas Medical Board if it:

1. Denies the physician access to a list of his patients whom he had seen or treated within one year of termination of the contract or employment;
   
   
2. Does not allow access to medical records of the physicians patients upon authorization of the patient and any copies of medical records for a reasonable fee as established by the Texas Medical Board under Section 159.008, Occupations Code;
   
   
3. Does not provide that any access to a list of patients or to patients medical records after termination of the contract or employment shall not require such list or records to be provided in a format different than that by which such records are maintained, except by mutual consent of the parties to the contract;
   
   
4. Does not provide a buy out of the covenant by the physician at a reasonable price or, at the option of either party, as determined by a mutually agreed upon arbitrator or, in the case of an inability to agree, an arbitrator of the court whose decision shall be binding on the parties; and
   
   
5. Does not allow the physician to provide continuing care and treatment to a specific patient or patients during the course of an acute illness even after the contract or employment has been terminated.

These requirements are in addition to those applied to any Texas non-compete of consideration and reasonableness as to time and territory.  

The non-compete agreement in this case did not contain any buy-out clause as required by Tex. Bus. & Com. Code 15.50(b).  The employer asked the court to reform or rewrite the agreement to provide a reasonable buy-out provision.  The Court said that while Section 15.50(b) authorizes a court to reform or rewrite a buy-out clause that was unreasonable, it did not authorize the court to write a buy-out clause into a contract where there was none. The Court found that if a noncompete covenant involving a physician does not have a buy-out clause, it is not enforceable.  

Lesson:  If the employer wants to obtain an enforceable non-compete covenant against a Texas licensed physician, it must comply with all the requirements of the Texas Bus. & Com. Code 15.50 (b), including a buy-out clause.  Otherwise, the non-compete will be unenforceable, and, a waste of the time and money spent drawing it up.  What will be considered a reasonable buy-out clause is open to question and opens a whole different can of worms, but it better to include at least some buy-out provision from the start.  If the parties cannot agree on the reasonableness of the terms of the buy-out clause at the time enforcement is sought, they can seek court or arbitrator involvement in resolving the dispute.  However, the court or arbitrator cannot reform an agreement to create a buy-out clause where one was totally omitted from the agreement initially.  

To learn more about Adair Buckner and her practice visit her profile page and her Labor & Employment Law page.

Adair M. Buckner, Attorney at Law, is Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization. Her other areas of practice include business law, business disputes, commercial litigation, estate planning, and probate. You can reach Adair at (806)-220-0150 or adair@adairbuckner.com. This material is not intended to be legal advice. The contents are intended for general information purposes only.