Employer Law Report : Employment and Labor Relations Lawyer & Attorney : Porter Wright's Employer Law Report : Employment Litigation, Non-Compete, Trade Secrets

There has always been a tension between a health care employer's desire to protect its patient relationships and a physician's obligation not to abandon patients when a physician either resigns or is terminated from employment. In Ohio, physician non-compete agreements are legal so long as they (1) are no broader than necessary to protect the employer's business interests; (2) do not unreasonably restrain the physician's ability to practice in the future; and (3) are not injurious to the public. As a result, many physician employment agreements contain post-employment non-competition and non-solicitation provisions. While reasonable non-competition provisions remain viable, recently enacted Ohio HB 417 may put an end to physician non-solicitation agreements at least insofar as they relate to patients.

Specifically, HB 417, which goes into effect on March 22, 2013, requires a health care entity to either send a notice to patients after a physician's employment has been terminated for any reason or to provide the physician with the names and contact information of the patients so that the physician can directly send the notice. The notice must be sent to any person who received physician services from the departing physician in the two year period immediately preceding the termination. The legislation contains exemptions for physicians providing episodic or emergency services, medical students, hospice medical directors and for physicians working a community mental health agency, a federally qualified health center or a federally qualified health center look-alike.

For purposes of the act, a health care entity is any of the following that employs a physician to provide physician services: (1) a hospital registered with the Department of Health, (2) a for-profit or nonprofit corporation, (3) a limited liability company, (4) a health insuring corporation, (5) a partnership, or (6) a professional association that, under Ohio law, must be composed only of individuals authorized to perform a professional service. In addition, a "termination" is defined as the end of a physician's employment with a health care entity for any reason, other than those situations where a physician becomes an independent contractor for the health care entity and continues to provide services to patients.

Each notice provided under the act, whether sent by a health care entity or a physician, must be sent no later than the date of termination or 30 days after the health care entity has actual knowledge of termination or resignation of the physician, whichever is later, and in accordance with rules adopted by the State Medical Board. The notice must include at least all of the following:

1. A notice to the patient that the physician will no longer be practicing as an employee of the health care entity;
2. The physician's name and any information provided by the physician that the patient may use to contact the physician. This portion of the notice is not required to be included if the health care entity has a good faith concern that the physician's conduct or the medical care provided by the physician would jeopardize the health and safety of patients.
3. The date on which the physician ceased or will cease to practice as an employee of the health care entity;
4. Contact information for an alternative physician employed by the health care entity, or contact information for a group practice that can provide care for the patient;
5. Contact information that enables the patient to obtain information on the patient's medical records.

Covered health care employers should continue to include non-competition provisions in physician employment agreements to the extent that they are necessary and appropriate to protect their legitimate business interests. In addition, nothing in HB 417 will prevent Ohio health care employers from restricting a physician's ability to solicit its employees or referral sources following departure.
 

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In Nitro-Lift Technologies, L.L.C. v. Howard, the U.S. Supreme Court this week held that if a contract contains an arbitration provision and there is a challenge to the validity of the contract, it is for the arbitrator and not a court to hear that challenge. The case is important for employers because the challenge was to the validity of a non-competition agreement. More specifically, the Supreme Court held that if a contract contains an arbitration provision, it is up to an arbitrator, and not a court, to determine whether the non-competition provision of the contract runs afoul of a state law limiting the enforceability of such restrictive covenants. In so holding, the Court reaffirmed its earlier precedent that when a contract contains an arbitration provision, the Federal Arbitration Act. (“the FAA”), is the law of the land and that the FAA promotes a “national policy favoring arbitration.” So, the Supreme Court held, the Oklahoma Supreme Court erred when it held that a state law limiting the enforceability of non-competition agreements essentially negated the arbitration provision of the contract and allowed a court to declare the non-competition agreement void. Rejecting this judicial hostility towards arbitration, the U.S. Supreme Court held that pursuant to the arbitration provision, the validity of the contract as a whole, including the non-competition agreement, was a question for the arbitrator and not an Oklahoma state court.

Nitro-Lift Technologies, L.L.C. provides services to operators of oil and gas wells that enhance production of those natural resources. Nitro-Lift entered into confidentiality and non-competition agreements with two of its employees, Eddie Lee Howard and Shane Schneider. Each of those agreements also contained an arbitration clause providing in pertinent part: “Any dispute, difference, or unresolved question [between the parties] shall be settled by arbitration[.]” Howard and Schneider quit working for Nitro-Lift and began working for one of its competitors.

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