Pennsylvania Limits Non-Compete Agreements for Health Care Practitioners

On July 17, 2024, Governor Shapiro signed Pennsylvania's Fair Contracting for Health Care Practitioners Act, House Bill 1633, into law -- effective January 1, 2025.  The Act changes the employment landscape in three ways:  first, it limits the enforceability of non-compete agreements against certain health care practitioners; second, it allows employer recovery of "reasonable expenses" from a health care practitioner upon their departure, but only under certain conditions; and third, it imposes a patient notice requirement on employers of health care practitioners when the employment relationship ends.  The Act applies to medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified registered nurse practitioners, and physician assistants, and their employers.

Limits on Non-compete Agreements

The Act limits the enforceability of non-compete agreements against covered health care practitioners.  Non-compete is broadly defined as anything that “has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting patients.”  Thus, it applies to traditional non-compete agreements and "de facto" non-compete agreements, much like the Federal Trade Commission’s Final Rule banning almost all non-compete agreements.[1]  The new restrictions are summarized below: 

• Non-compete agreements lasting longer than one year will be unenforceable under most circumstances.
  

• The Act ALLOWS employers to enter into and enforce non-compete agreements with health care practitioners with a duration of one year or less (but not in case of termination).
  

• The Act prohibits employers from enforcing a non-compete agreement against health care practitioners who are involuntarily terminated, regardless of the circumstances.
  

• Like the Federal Trade Commission’s Final Rule, the Act does not apply to non-compete agreements entered into in connection with the sale of a business or grant of equity, provided the health care practitioner was a party to the transaction.
  

• The Act does not discuss confidentiality and non-solicitation restrictions.  So, it seems that confidentiality and non-solicitation restrictions are enforceable under the Act, subject to litigation and further court interpretation.
  

• There is no provision in the Act that explicitly addresses retroactivity.  In the absence of language stating otherwise, any non-compete agreements entered into prior to the effective date will remain enforceable, subject to litigation and further court interpretation.

[1] There is currently no nationwide injunction stopping the Federal Trade Commission non-compete ban from going into effect on September 4, 2024, despite several legal challenges.

Recovering “Reasonable Expenses”

The Act explicitly addresses training repayment agreements and the like.  It states, “Nothing in this section shall be construed to prohibit the enforcement of a contract provision that allows the employer to recover reasonable expenses from health care practitioners if the expenses are: (1) directly attributable to the health care practitioner and accrued within three years prior to a voluntary separation; (2) related to relocation, training, and establishment of a patient base; and (3) amortized over a period of no more than five years from the date of the health care practitioner’s separation.”  But recovery of such expenses is prohibited if the health care practitioner is involuntarily terminated.

Notice Requirement

The Act also imposes a patient notice requirement on health care employers.  If a health care practitioner had an ongoing relationship with a patient for two or more years and saw the patient within a year before leaving, the employer must notify the patient within 90 days of the practitioner's departure.  The notice must:

• Inform the patient that the practitioner departed;

• Offer the option to continue care at the practice (i.e., assign the patient to a new practitioner within the existing practice); and

• Provide the patient with information regarding how they may transfer health records to a practitioner other than the employer.

Under the plain language of the Act, the patient notice requirement is triggered regardless of the reason for the end of the employment relationship.  The Act does not specify how notice must be accomplished (e.g., email, letter).  In its current form, there are no penalties tied to the Act for noncompliance.

The full text of the Fair Contracting for Health Care Practitioners Act, House Bill 1633, is available here.  Pennsylvania health care employers should take note of the Act's new restrictions and prepare to meet the new patient notification obligations beginning January 1, 2025.

If you have any questions or concerns regarding the Fair Contracting for Health Care Practitioners Act or other legislation regarding non-compete agreements, please contact the MacDonald, Illig, Jones & Britton LLP Labor & Employment team.

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