Effective July 1, 2023, Connecticut modifies its law governing physician covenants not to compete and extends non-compete protections to advanced practice registered nurses (“APRNs”) and physician assistants (“PAs”). Physicians, APRNs, PAs, and their employers will need to evaluate current non-competition provisions and revise, as needed, to comply with the new law.
Physicians
Primary Practice Location
Effective July 1, 2023, Public Act 23-97 modifies Connecticut’s physician non-competition statute in several important ways. Unchanged from the current statute, physician non-competes may only apply for a maximum of one year and may only restrict a physician’s practice in a geographic region of not more than fifteen miles from the primary site where such physician practices. The new law clarifies that a physician’s primary site of practice is defined as a single office, facility or location. While this may be a small clarification, it is an important protection for physicians as some employers sought to impose a fifteen mile radius around two or more sites at which a physician practiced. The new law also provides greater flexibility for the parties to define the primary practice location as is most appropriate for their unique circumstances; provided, that, the primary site of practice is only one office, facility or location.
Importantly, as employment agreements and professional services agreements come up for renewal, the parties will need to ensure that the covenant not to compete is appropriately modified to comply with this change.
Exceptions to Enforceability of Covenants Not to Compete
Currently, a covenant not to compete is not enforceable against a physician if (i) the employer terminates the physician’s agreement without cause or (ii) (a) the agreement is not made in anticipation of, or part of, a partnership or ownership agreement, (b) the agreement or other contract expires or is not renewed, and (c) the employer did not make a bona fide offer to renew the contract on the same or similar terms.
The Connecticut Legislature also added a new exception to the enforceability of physician covenants not to compete. Effective October 1, 2023, employers with more than thirty-five (35) physicians and employers that are not majority-owned by physicians (e.g. medical foundations and faculty practices) may not enforce a non-compete in situations in which the employer has proposed a material change in the physician’s compensation, the physician rejects the proposed change, and the employer does not make another offer without the material change in compensation. However, if the employer were to terminate the physician’s agreement for cause, the noncompetition provision would remain in full force and effect.
The current law, which remains unchanged, has always permitted a physician who is not offered a renewal on the same or similar terms and conditions to leave his or her employment without being subject to a covenant not to compete. The new law creates a clear exception that an attempt to materially change compensation, especially in the context of a practice transaction or a significant change of ownership to non-physicians, will make the covenant not to compete unenforceable if a physician were not to agree to the material change in compensation.
Additionally, there are several components of the new exception that leave room for interpretation. First, as noted above, the new exception is applicable to practices with more than thirty-five (35) physicians without specifying how to count the physicians. Does this mean the full-time equivalent of thirty-five (35) physicians or thirty-five individual physicians regardless of the number of hours worked? Should both employed and independent contractor physicians be included in the tallying?
Additionally, the statute does not provide guidance on what constitutes a material change in compensation. A change in any number of factors, alone or in combination, could be considered a material change. For example, is a ten percent (10%) decrease in monetary compensation sufficient to constitute a material change? What about a ten percent (10%) increase in the work relative value unit (“wRVU”) threshold that must be met to qualify for a bonus or a change in the conversion factor applied to wRVUs generated? Does a loss of continuing medical education reimbursement, or a reduction of paid time off or added administrative tasks constitute a material change? All of these factors will need to be evaluated on a case-by-case basis.
Importantly, and as has been in effect since the inception of Connecticut statute governing physician covenants not to compete, if an employer terminates a physician’s agreement for cause, the employer may always enforce the covenant not to compete against the physician.
APRNs and PAs
The same protections provided to physician covenants to not compete are extended to APRNs and physician assistants PAs. Thus, similarly to physicians, as of October 1, 2023, any covenant not to compete restricting an APRN’s or PA’s practice that is made, amended, extended, or renewed, may only apply for a maximum of one year and restrict an APRN’s or PA’s practice in a geographic region of not more than fifteen miles from the primary site where such APRN or PA practices. Primary practice site has the same definition for physicians, APRNs, and PAs—a single office, facility or location that is mutually agreed to by the parties.
The same exceptions to the enforceability of non-competition provisions for physicians are also extended to APRNs and PAs. Notably, the new enforcement exception related to a material change in compensation discussed above, is applicable to all practices, regardless of the size or ownership of the practice, for which an APRN or PA works.
The changes to Connecticut’s non-competition statute should motivate practices and their physicians, APRNs, and PAs to ensure that the covenants not to compete in their agreements are drafted so that they may be enforced under the appropriate conditions.
Should you have any questions regarding the above, please contact the authors or the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].