Louisiana Legislature Passes Bill Limiting Physician Noncompetes

The Louisiana Legislature passed Senate Bill 165 on May 15, which would create substantial changes to Louisiana’s law regarding covenants not to compete (noncompetes) in physician employment contracts. The bill is now headed to Governor Jeff Landry’s desk for his signature.

If signed, the bill would affect noncompetes in all physician employment agreements, except for those in agreements with rural hospitals (as defined under Louisiana’s Rural Hospital Preservation Act) or Federally Qualified Health Centers. Though the new law would not go into effect until Jan. 1, 2025, health care employers and physicians should act as soon as possible to review their employment agreements and determine whether changes are needed to comply with the changes to existing law.

Unlike the version of Senate Bill 165 out of the Senate, the final version of the bill would affect noncompetes in employment agreements with both primary care physicians and other physicians, including specialists. Noncompete provisions in agreements with physicians will need to terminate after three years (for primary care physicians) or five years (for all other physicians). The three- or five-year period will run 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, colloquially known as a “burn-off” period, means that employers could still include noncompetes in agreements with newly employed physicians, but those noncompetes would go away for any physician employed for three or five years.

Another important change to existing law is that, as of Jan. 1, 2025, physician noncompetes will be more limited in their geographic scope. Current Louisiana law allows noncompetes to be enforced in any parishes or municipalities designated in the agreement in which the employer carries on a business like that in which the employee is 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. Employers and physicians will need to ensure that the geographic scope of any noncompetes in effect after Jan. 1, 2025, is limited to only three parishes.

Employers and physicians should remain mindful that Senate Bill 165 is not the only major change to noncompetes set to take effect over the next few months. The Federal Trade Commission’s Non-Compete Clause Rule will, unless enjoined, go into effect on Sept. 4, 2024. Employers subject to the FTC rule will need to comply with its more restrictive requirements. State law, as modified by Senate Bill 165, will apply to noncompete agreements allowed by the FTC rule and those that are not subject to the FTC rule.

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