On July 23, 2024, Pennsylvania Governor Josh Shapiro signed the Fair Contracting for Health Care Practitioners Act (the “Act”), which bans certain noncompete covenants, including patient nonsolicitation provisions, between an employer and health care practitioner if the covenant is more than one year or the health care practitioner was “dismissed by the employer.” The effective date of the Act is January 1, 2025.
The Act’s Key Provisions
The Act renders void and unenforceable any covenant between an employer and health care practitioner “which has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients.” The Act, however, includes a key exception: it permits covenants that are no more than one year and where the health care practitioner was “not dismissed by the employer.” Therefore, covenants will remain enforceable if (1) the covenant lasts no more than one year and (2) the health care practitioner voluntarily separates from the employer.
The Act defines employer broadly as any person or group of persons that employ a health care practitioner at a health care facility or office. The definition of health care practitioner covers medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified registered nurse practitioners, and physician assistants. The Act uses the term “noncompete covenants,” but the definition is broad enough to cover covenants commonly known as patient nonsolicitation provisions, as these provisions may have the “effect of impeding the ability of a health care practitioner” to treat patients.
The Act also limits its scope in two additional ways.
First, the Act states that it does not prohibit an employer from enforcing a contract provision that allows an employer to recover reasonable expenses from a health care practitioner if the expenses are (1) directly attributable to the health care practitioner and accrued within three years before a separation when the health care practitioner was not dismissed by the employer; (2) related to relocations, training, and the establishment of a patient base; and (3) amortized over a period of up to five years from the date of separation by the health care practitioner.
Second, the Act does not apply to covenants connected to (1) the sale of a health care practitioner’s ownership interest in an entity or all or substantially all of the assets of the business entity; (2) transactions resulting in the sale, transfer, or change in control of the business entity; or (3) an ownership interest in the business entity.
Finally, the Act has certain patient notification requirements, which impose additional obligations on all entities that fall within the definition of employer under the Act. These notification requirements apply to patients with whom the health care practitioner had an ongoing outpatient relationship for two or more years and the health care practitioner has seen the patient within the preceding year of the separation. For such patients, within 90 days of a health care practitioner’s departure, the employer must inform the patient that (1) the health care practitioner departed; (2) the patient may receive care from the departed health care practitioner or another health care practitioner, including how the patient can transfer records to another health care practitioner other than with the employer; and (3) the patient may be assigned to another health care practitioner within the employer.
Next Steps
Entities that employ health care practitioners in Pennsylvania should consult legal counsel and evaluate their post-employment restrictions and develop plans for the patient notification process. Employers also should monitor the Federal Trade Commission’s rule banning most noncompete agreements, which is more expansive than the Act’s prohibition on restrictive covenants and includes employee notification requirements that are scheduled to go into effect on September 4, 2024 (unless successfully challenged in the courts before the effective date.1
Footnotes
1 See Rachel Fendell Satinsky and Tanner McCarron, Pennsylvania Federal Court Declines to Block FTC’s Non-Compete Rule, Littler ASAP (July 24, 2024); Scott McDonald, Jim Paretti, and Collin Quigley, Texas District Court Narrowly Stays and Enjoins FTC’s Non-Compete Rule, Littler ASAP (July 4, 2024).
