Washington House Bill Seeks to Prohibit Physician Noncompete Agreements

On January 14, 2015, House Bill 1173 (sponsored by Reps. Carlyle, Reykdal and Stanford) was introduced to prohibit noncompete agreements that restrict the right of physicians to practice in a geographic area for a period of time after termination of an employment contract.

By adding new sections to RCW 18.57 (Osteopathic Medicine & Surgery) and RCW 18.71 (Physicians), HB 1173 would make restrictions on the right of a licensed physician to practice medicine in a geographic area for a period of time after the termination of an employment or other professional contract “void and unenforceable.” The bill does allow contractual provisions providing for damages relating to injury suffered due to termination of a contract. However, the injured party would have the challenging burden of establishing the “reasonableness” of such damages with “clear and convincing evidence.”

As reasons for enacting the bill, HB 1173 cites the American Medical Association Code of Medical Ethics which recognizes that “noncompete agreements restrict competition, can disrupt continuity of care, and may limit access to care.” The bill also explains that the physician-patient relationship is critical, especially in primary care and psychiatry, and that this relationship must take precedence over a medical institution’s financial interests. Furthermore, the bill states that “noncompete agreements conflict with the responsibility of medical institutions to train new physicians and to enable those physicians to serve patients in the community.”

Washington law currently permits “reasonable” physician noncompete agreements. A noncompete is reasonable if (1) it is necessary to protect a legitimate business interest; (2) it is no greater than reasonably necessary to secure the employer’s business or goodwill; and (3) the degree of injury to the public in the loss of the service and skill of the physician is so small as to warrant enforcement.

Washington is one of the more enforcement friendly jurisdictions for restrictive covenants such as non-competes. Thus, if passed, HB 1173 would reflect a substantial change to existing law by expressly prohibiting noncompete provisions in physician employment agreements in Washington State. The bill has been referred to the Committee on Health Care & Wellness. If you have questions about HB 1173 or healthcare employment issues, please contact Patrick Pearce or Jefferson Lin.