Removal of the Six-Year Limitation for Healthcare Non-Compete Agreements in Tennessee

Effective January 1, 2012, the Tennessee legislature has, once again, modified healthcare non-compete agreements in Tennessee.  This change eliminates the six-year limitation on non-compete agreements and extends the statue to include osteopathic physicians.

For most physicians, the change means that a non-compete agreement can now exceed the previous six-year limitation by contract.  However, it continues to prohibit non-compete agreements for physicians specializing in emergency medicine.

Since 2005, the Tennessee Supreme Court has ruled that most non-compete agreements with physicians in private practice were unenforceable as against public policy.  In response, the Tennessee legislature enacted Tenn. Code. Ann. § 63-1-148, which allowed healthcare non-compete agreements for a single six-year period.  In 2010, the Tennessee legislature added an additional amendment that allowed for a second six-year period, provided that the additional six year non-compete agreement was obtained through subsequent negotiations and not an automatic renewal provision.

The latest change now provides that a healthcare non-compete agreement is otherwise presumed reasonable, regardless of the length of employment, provided that the restriction is limited to two years after employment and the non-compete geographic limitation is not larger than the greater of either ten miles from the primary practice or the county of the primary practice. Essentially, the 2012 statutory change removes the expiration of the non-compete agreement and/or its renegotiation after six years.

The statue now provides that a restriction on the right of a healthcare provider to practice the healthcare provider’s profession upon termination or conclusion of the contractual relationship shall be deemed reasonable if: (A) the restriction is set forth in a written document signed by the healthcare provider and the employing or contracting entity and (B) the duration of the restriction is two years or less (after termination) and either i) the geographic restriction is the greater of a ten-mile radius from the primary practice site or the county in which the primary practice of the healthcare provider while employed, or ii )there is no geographic restriction but the healthcare provider is restricted from practicing the healthcare provider’s profession at any facility at which the employing or contracting entity provided services while the healthcare provider was employed or contracted with the employing or contracting entity.

Additionally, an agreement entered into for the purchase or sale of a healthcare provider’s practice, or substantially all of the practices’ assets, may restrict the healthcare provider’s right to practice their profession. That is, provided, that the duration of the restriction and the allowable area of the restriction are reasonable under the circumstances. There shall be a rebuttable presumption that the duration and area of restriction agreed upon by the parties in such an agreement are reasonable.

If you ever have a question about non-compete agreements or have an unfair competition issue, feel free to contact any of the Burr & Forman’s Non-Compete & Trade Secrets team members and we will be happy to assist you.