Hospitals Must Include Time, Scope Limits in Physician Noncompetes Starting Jan. 1, 2025

This article was originally published by Louisiana Hospital Association in Volume 39, Issue 5 of Impact Lawbrief. 

On May 23, Gov. Jeff Landry signed Act. No. 273, which creates substantial changes regarding covenants not to compete (noncompetes) in physician employment contracts. The updates take effect for new and existing agreements on Jan. 1, 2025.

The new law affects noncompetes in all physician employment agreements, except for those in agreements with rural hospitals or Federally Qualified Health Centers. Hospitals and other healthcare employers should act as soon as possible to review employment agreements and determine whether changes are needed to comply with the law.

Unlike the version of the law initially passed out of the Senate, the final version affects noncompetes in employment agreements with both primary care physicians and other physicians, including specialists. Noncompete provisions in agreements with physicians must terminate after three years (for primary care physicians) or five years (for all other physicians). The three- or five-year period runs from the effective date of the physician’s initial employment agreement for new agreements and from Jan. 1, 2025, for physicians employed as of that date. This phase out, known as a “burn-off” period, means that employers can still include noncompetes in agreements with newly-employed physicians, but those noncompetes go away after three or five years.

Another important change is that, as of Jan. 1, 2025, physician noncompetes will be more limited in their geographic scope. Previously, noncompetes could be enforced in any parishes or municipalities designated in the agreement in which the employer carried on a business like that in which the employee was engaged. There has historically been no statutory limit to the number of parishes that can be designated in the noncompete. Under the revised law, physician noncompetes must be restricted to three parishes—the parish in which the physician’s principal practice is located and two adjacent parishes. Hospitals need to ensure that the geographic scope of any noncompetes in effect after Jan. 1, 2025, is limited to only three parishes.

This new law is not the only major change to noncompetes set to take effect over the next few months. The Federal Trade Commission’s (FTC) Non-Compete Clause Rule will, unless enjoined, go into effect Sept. 4, 2024. Hospitals subject to the FTC rule will need to comply with its more restrictive requirements. State law, as modified by Act No. 273, applies to noncompete agreements allowed by the FTC rule and those that are not subject to the FTC rule.