A Call for Advocacy: The Case Against Noncompete Agreements in Psychiatric Practice

Noncompete agreements are contractual clauses that limit an employee’s right to switch jobs and work for a competitor. These clauses, also referred to as restrictive covenants, first developed in the 15th century under English common law. English courts at the time regarded them as unnecessary restraints to trade and employment. Over time, however, the courts shifted their stance and permitted utilization of noncompete agreements as long as the restraint was “reasonable” and limited in scope, duration, and geography. In the United States, the “Restatement of Contracts” published by the American Law Institute are the most influential documents on contract law outside of legal opinions. These writings state that restraints are not lawful if they unjustly benefit employers and impose undue hardship on employees and/or the public. Most physician contracts contain a noncompete clause, and they often clearly benefit employers while imposing hardships on both physicians and their patients.

The AMA opposes unreasonable restrictive covenants. However, due to the broad scope of physicians (employees and employers) represented by the AMA, as well as the unique health care markets of each state, the AMA has not made a blanket statement prohibiting all noncompete agreements in health care. The American Bar Association (ABA), by contrast, has a definitive stance against most attorney noncompete clauses. This stance is based on the view that it is in the public’s interest to preserve an attorney’s professional autonomy and protect a client’s freedom to choose an attorney.

While APA does not have a stated policy on noncompete agreements, it is working at the state level on legislation targeting this concern. APA recently drafted legislation that was signed into law in Montana to help ban restrictive covenants for mental health professionals and will continue this work in other states to help ensure the mental health workforce does not leave the state. In most states, there is a lack of clear language protecting psychiatrists and their patients from the unfavorable terms of restrictive covenants. This leaves much at stake to be interpreted by the courts.

Psychiatry is a unique field of medicine and psychiatrists would be well served by protections against noncompete agreements. Unlike most other specialties, much of psychiatry has a low overhead that offers fewer barriers to enter a self-employed private practice. Other specialists, especially those in surgical and procedural fields, often rely on employment or affiliation within systems or groups to take advantage of expensive equipment, operating space, trained support staff, and a referral base. Private practice psychiatrists, in contrast, can thrive without these resources. An employed psychiatrist may choose to leave his or her employment to start a private practice. The private practice model can offer patients the benefit of obtaining psychotherapy and medication management from one provider, a service that is becoming more difficult to find among employed psychiatrists. A noncompete agreement would deter employed psychiatrists from starting their own practice and offering this valuable service to the public. A noncompete agreement might even force a psychiatrist to have to leave the state to practice.

Patients have the potential to build a very special physician-patient relationship with their psychiatrist. Psychiatric patients are some of the most vulnerable in health care. In the case of someone with severe and persistent mental illness, family members may become involved in treatment planning, and they, too, build an important relationship with the psychiatrist. It is not uncommon to hear patients with schizophrenia say they don’t think they need to be on a medication, but they take it because their psychiatrist recommends the treatment. As one might imagine, breaking the continuity of care between psychiatrists and their long-term patients can have a devastating impact on patients and can lead to significant psychiatric decompensation requiring hospitalization and perhaps even causing a distrust of medical establishments. Protections against restrictive covenants can preserve the sacred physician-patient relationship.

Telehealth services have become increasingly common in the field of psychiatry, especially in the post-pandemic era and amid widespread psychiatrist shortages. Telehealth allows residents of rural communities to receive psychiatric care that they otherwise would not be able to receive locally. Enforcing noncompete agreements in the age of telepsychiatry would adversely impact patients, and geographic scope would be too broad. With a greater proportion of psychiatrists adopting at least a partial telehealth platform, noncompete agreements may become increasingly more complicated to enforce.

Noncompete agreements have no place in psychiatry. Not only do they restrict psychiatrists’ professional autonomy and freedom to practice where they desire, but they can lead to disruptions in employment in a field that already has a significant shortage of physicians. From a public impact perspective, restrictive covenants threaten to sever the physician-patient relationship and could ultimately lead to psychiatric destabilization. Furthermore, they could be detrimental to rural communities that already have very limited access to psychiatric services and rely on telehealth for access to treatment. Work at the state level has already begun to ban noncompete agreements for psychiatrists. My hope is that APA would continue to support such efforts across all states. The future health of our profession and our patients depend on it. ■

“FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition”

“Balancing Employer and Employee Interests: The Enforceability of Liquidated Damages Clauses, Non-Solicitation Provisions, and Restrictive Covenants in Employment Contracts”