As the Federal Trade Commission's national ban on noncompete covenants continues to take center stage, several states are passing legislation to limit such covenants at the state level. Most recently, Pennsylvania joined the list of approximately 20 states that limit post-employment noncompete covenants for certain health care practitioners.
On July 17, 2024, Pennsylvania Governor Josh Shapiro signed House Bill (HB) 1633, also known as the Fair Contracting for Health Care Practitioners Act (Act 74), which will prohibit specific noncompete covenants for health care practitioners in Pennsylvania, effective January 1, 2025.
HB 1633, introduced by Rep. Dan Frankel (D-Allegheny), initially aimed to ban non-compete agreements for health care workers entirely. However, legislative negotiations resulted in a partial but significant restriction on these agreements. The bill's effects will likely intensify competition for licensed providers and pose challenges for institutional providers in rural areas who may struggle to attract top talent due to location and salary constraints.
The Act's Key Provisions
1. Effective Date
The Act takes effect on January 1, 2025.
2. Scope of Application
The Act applies only to licensed medical doctors, osteopaths, nurse anesthetists, registered nurse practitioners and physician assistants (each a "Health Care Practitioner").
3. Prohibition of Noncompete Covenants
Certain noncompete covenants entered into after January 1, 2025, are deemed "contrary to public policy and [thus] void and unenforceable by an employer."
4. Definition of Noncompete Covenant
A "noncompete covenant" is defined as an agreement between an employer and a Health Care Practitioner that impedes the health care practitioner's ability to continue treating patients or accepting new patients independently or with a competing employer after their employment term.
5. Permissible Noncompete Covenants
Employers may enforce a noncompete covenant with a Health Care Practitioner if it is limited to one year or less and the Health Care Practitioner terminated the employment relationship.
Noncompete covenants are also permissible in connection with (a) the sale of a Health Care Practitioner's ownership interest in an entity, (b) a sale of all or substantially all of the assets of the business entity, (c) transactions resulting in the sale, transfer or change in control of the business entity, or (d) an ownership interest in the business entity.
6. Patient Notification Requirement
Employers must notify certain patients within 90 days after the departure of a Health Care Practitioner. These notifications must include: (a) the fact that the Health Care Practitioner has departed, (b) the patient's right to choose to be assigned to a new practitioner within the existing employer, and (c) instructions on how to transfer health records if they choose to continue treating with the departing Health Care Practitioner. This requirement applies to patients the departing Health Care Practitioner has "seen within the past year" and with whom the departing Health Care Practitioner has had an "ongoing outpatient relationship" for at least two years.
7. Recovery of Expenses from Health Care Practitioner Permitted
The Act does not prohibit employers from contracting to recover reasonable expenses from a Health Care Practitioner that are: (a) directly attributable to the healthcare practitioner and accrued within three years prior to separation (unless separation is caused by dismissal of the healthcare practitioner), (b) related to relocation, training and establishment of a patient base, and (c) amortized over a period of up to five years from the date of separation by the healthcare practitioner.
Key Takeaways
The Act is broad in scope but lacks definitions for key terms and has significant gaps regarding enforcement, posing challenges for employers seeking compliance and potential for future litigation. Employers should carefully review any noncompete covenants they plan to use with Health Care Practitioners after December 31, 2024, to ensure their noncompete covenants conform to the Act's requirements and make strategic use of the Act's exceptions.
Buchanan's Labor and Employment and Government Relations teams continue to monitor the latest developments and stand ready to address any inquiries regarding your company's practices and policies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.