Five Things to Know About the Physician Noncompete Bill Passed by LA Senate

The Louisiana Senate unanimously passed Senate Bill 165 on April 8, which would create substantial changes to Louisiana’s law regarding covenants not to compete (“noncompetes”) in physician employment contracts. Keep reading for a few important changes that SB 165 would make to current law.

1. What is SB 165 proposing?

SB 165 would change existing law to require a “burn-off” period for certain physician noncompetes. If adopted, SB 165 would require noncompetes in most primary care physician employment agreements to expire after the physician has completed three years of service. The phase-out of a noncompete after a specified period is colloquially known as a “burn-off.” SB 165 would also restrict the application of noncompetes for primary care physicians to three contiguous parishes in which the employer carries on a “like business.” These three parishes must be specified in the physician’s written employment agreement.

A noncompete subject to SB 165 would be required to terminate after a primary care physician has worked for the employer for a three-year period. Any subsequent employment agreement with the same employer would be prohibited from containing a noncompete provision. If the physician’s employment terminated within the initial three-year period, the noncompete could only apply within the three contiguous parishes specified in the employment agreement.

2. Which physicians are covered by SB 165?

SB 165 would only apply to contracts or agreements restraining “primary care physicians.” All other physicians would remain subject to the existing law governing the enforceability of noncompetes.

Under SB 165, a “primary care physician” is any physician who predominantly practices “general family medicine, general internal medicine, general pediatrics, general obstetrics, or general gynecology.” The bill would not apply to subspecialists in any of these medical specialties, who would remain subject to the existing law on noncompetes.

3. What is the existing law on noncompetes for physicians?

La. R.S. 23:921 governs how noncompetes can be enforced in Louisiana. Although the state has a strong public policy against the use of noncompetes, if a noncompete strictly follows the requirements of the statute, it will be enforced, even against physicians. Under existing law, noncompetes can restrict an employee’s ability to compete with an employer for a period of up to two years from the date the employee stops working for the employer. Existing law does not require a noncompete to phase out over time to be enforceable. Existing law also allows the employment agreement to specify any parishes or municipalities in which the noncompete applies, so long as the employer carries on a like business in those parishes or municipalities. This means that the employer is not required under existing law to restrict the application of a noncompete to three parishes.

The proposed bill differs from present law by requiring a “burn-off” period for primary care physicians and restricting noncompetes for primary care physicians to three contiguous parishes.

4. Are there any exceptions to SB 165?

Aside from the limitation of SB 165 to primary care physicians, the bill also excepts agreements for physicians employed by rural hospitals, as defined in the Rural Hospital Preservation Act. This would include many small hospital service districts located in rural parishes. These hospitals would remain subject to existing law on noncompetes but would not be required to build in “burn-off” periods for their employed primary care physicians.

5. When would SB 165 take effect?

SB 165 would take effect for any contract entered into on or after Jan. 1, 2025.

If the bill becomes law, health care providers that employ primary care physicians may need to adjust noncompetes included in employment contracts. SB 165 moves to the Louisiana House of Representatives next. Phelps will monitor the bill’s progress and provide updates.

Have questions? Contact Matt Harrell, Beau Haynes, Courtney Hurtig or any member of the Phelps Health Care team for guidance.