Beware of Added Restraints on Indiana Physician Noncompete Agreements

Effective July 1, 2023, an amended law went into effect (Public Law 165, PL 165) that placed further restraints on Indiana physician noncompete agreements. These restraints are in addition to those that were put into effect on July 1, 2020, at Ind. Code §§ 25-22.5-5.5-1 and 25-22.5-5.5-2(a) (read more here) and retroactively impact agreements entered into after July 1, 2020. Health care providers will need to become familiar with these additional changes and adjust their physician noncompete agreements (or any agreements containing noncompete language, such as employment agreements) and their enforcement efforts accordingly. We have provided a summary of the additional restraints below. 

The amended law prohibits employers from requiring that a “primary care physician” (PCP) enter into any new noncompete agreement after July 1, 2023. The amended law defines PCPs to include (a) family doctors, (b) internists, and (c) general pediatric doctors. As such, given what we know, the amended law does not prohibit noncompete agreements with specialty physicians, such as surgeons, anesthesiologists, radiologists, obstetrics/gynecology specialists, and so on. 

Further, as of July 1, any physician noncompete entered into after July 1, 2020, is unenforceable if (a) the employer terminates the physician without cause, (b) the physician terminates their employment for cause, or (c) the agreement expires; provided, however, that the physician and employer have fulfilled their respective duties thereunder (i.e., performance has occurred with no uncured breaches). Notably, the term “cause” is not defined in the new law, which means employers are left with the definitions of cause contained in any agreement with the physician or the definitions fleshed out in court decisions. 

The amended law also adds some procedural requirements related to the reasonable buyout provisions required under the restraints put into effect in July 2020. These additional procedural requirements only apply to physician noncompetes entered into on or after July 1, 2023. Specifically, if the physician exercises their reasonable buyout option through sufficient notice to the employer, and the parties had not agreed to a reasonable buyout amount already, then the employer is obligated to negotiate with the physician in good faith in an effort to reach a reasonable buyout amount. If, after good faith negotiations occur, an agreement is not reached, either party may initiate mediation by giving the other party notice within thirty-five (35) days from the physician’s election to exercise the buyout provision. The parties then have forty-five (45) days for mediation to determine the purchase price of the buyout (with a mediator being mutually selected, and associated costs to be split evenly by the parties unless otherwise agreed). The mediation must take place in a city closest to the physician’s primary place of employment that has a population of more than 50,000 unless the parties agree to hold it elsewhere.

In addition to the change in Indiana law regarding noncompetes, there are also efforts from a federal perspective to limit the use of noncompete agreements more generally. In January, the Federal Trade Commission (FTC) published a Notice of Proposed Rulemaking that would ban the use of noncompetition provisions in employment contracts reasoning that the rule, if promulgated, could reduce health care spending by $148 billion annually. Prominent lobbyist groups, like the American Hospital Association, oppose the rule and cite that it would make it harder for health care employers to retain physicians. Conversely, a number of physicians have commented in support of the rule stating that noncompete covenants lead to burnout and require them to uproot their lives in order to find work elsewhere. 

The FTC’s rule would prohibit employers from (i) entering into or maintaining noncompete agreements with employees, and (ii) representing to an employee that they are subject to a noncompete covenant. We note that the federal rule may be more restrictive than PL 165 and will apply broadly across industries and professions (not just physicians and other health care practitioners). Comments on the rule were extended but have closed as of April 19, 2023. Follow this link to read more about the rule. 

If you have questions about this topic, please contact Taryn Stone, Tami Earnhart, Jacob Butz, or any member of our Health Care team or Workplace Solutions Group at Ice Miller. 

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.