How California Medical Practices can Protect Themselves Without a Non-Compete
Employee non-compete agreements are highly disfavored in California. Indeed, state law (California Business and Professions Code § 16600) holds that non-compete agreements are broadly void, invalid, and unenforceable. For the owners of group medical practices, it is generally impermissible to use a non-compete for a physician. However, there are some alternative options available. Here, our Fremont business contracts lawyer provides an overview of the key things to know about how to protect your practice when you cannot use a non-compete agreement for a physician in California.
Physician Non-Compete Alternatives: Protecting Your Practice When You Can’t Use a Non-Compete
A Deeper Overview of the Law: California Prohibition on Non-Compete Agreements
California takes one of the nation’s strictest approaches to employee non-compete agreements. Business and Professions Code § 16600 provides that, except for narrow statutory exceptions, “every contract” restraining a person from engaging in a lawful profession, trade, or business is void. For physician employment agreements, that rule is especially important. A medical group generally cannot prevent a departing physician from continuing to practice medicine, opening a competing office, joining another practice, or treating patients in the same geographic market.
Note: California’s 2024 amendments made the rule even stronger. Section 16600 now requires broad construction of the statute and specifically confirms that employment non-competes are void no matter how narrowly tailored unless a statutory exception applies.
Know the (Narrow) Exception to the Non-Compete Restriction
The main business-sale exception is found in Business and Professions Code § 16601. A physician-owner who sells goodwill, equity, or substantially all operating assets of a practice may agree to a geographically limited restraint connected to that sale. With that being said, the exception is narrow and should not be treated as a workaround for ordinary physician employment.
How to Protect Your Practice: Physician Non-Compete Alternatives in California
A medical practice still has legitimate ways to protect its business. The key is to protect specific business assets without restraining a physician’s lawful practice of medicine. Here are some of the alternatives to physician non-competes that can help to protect your medical practice in California:
- Strong confidentiality/trade secret provisions: A practice can prohibit misuse of confidential business information. That may include payer contracts, fee schedules, referral-source strategy, internal compensation data, staffing information, marketing plans, vendor terms, credentialing files, and non-public operational data.
- Comprehensive protection of patient records: A departing physician may have professional and ethical duties related to continuity of care, but patient charts, scheduling data, billing records, portal access, and practice management systems belong to the practice.
- Very carefully drafted non-solicitation agreements: California courts are skeptical of employee and customer non-solicitation provisions when they operate like restraints on competition. However, certain non-solicitation clauses may be viable.
- Reasonable repayment and training-cost provisions: A group medical practice may want to recover signing bonuses, relocation payments, advanced compensation, malpractice tail contributions, or training expenses if a physician leaves early. Beginning 1/1/2026, California has placed limitations on employers’ ability to recover such sums when an employee leaves. Therefore, these provisions should be reviewed by an attorney to ensure compliance. Also, these provisions should be reasonable, clearly documented, and structured as repayment of identifiable benefits rather than a penalty for competition.
Contact Our California Business Lawyer for Physician Practices Today
Lynnette Ariathurai is a California business attorney who works with group medical practices. If you have any questions about the alternatives to non-compete for physicians in California, please do not hesitate to contact us today for a confidential consultation. We provide business law services to medical practices throughout the Bay Area.
California non-compete law, medical practice legal advice, physician non-compete