by Judy L. Polacheck
Hospitals and physicians?groups frequently request that doctors agree not to practice within a specified geographic area for a certain period of time after their employment ends. These agreements are often referred to as “non-competes.?nbsp; The non-compete might be part of an employment agreement entered into upon hiring, or it might be a document that the employer asks the physician to sign at some later stage, such as the time of promotion. Some non-competes also provide for the employee to pay pre-determined sums in “liquidated damages?should they violate the agreement.
Physician non-competes are periodically the subject of lawsuits. Hospitals and individual doctors have sued former employees who have taken new positions in different hospitals, or opened new practices on their own. Through a claim that the former employee is violating the agreement, the employers seek to prevent the individual from continuing to compete and to obtain an award of damages.
There are no universal rules about when non-competes are enforced against physicians because the law varies widely from state to state. There are a small group of states that look with disfavor on all physician non-competes. In California, for instance, non-competes are rarely enforced against anyone, including doctors. Under Massachusetts law, the right of a physician to practice medicine after the termination of employment cannot be restricted by contract or agreement. Colorado similarly prohibits any agreements restraining doctors from practicing, although courts will nonetheless enforce liquidated damages clauses so long as the damages are reasonable.
In most other states, the enforceability of a physician non-compete is determined by a multi-factor analysis. While the factors are not identical in each state, they generally involve: (i) whether there is a legitimate interest for which the employer is seeking protection through the non-compete, such as goodwill, or whether the employer is, instead, seeking to stifle ordinary competition; (ii) whether the non-compete imposes an undue hardship on the employee; and (iii) the impact that the non-compete might have on the public interest. As part of this analysis, courts consider whether the temporal and geographic restrictions imposed by the non-compete are reasonable.
In a recent New Jersey case, a teaching hospital successfully enforced a non-compete against a neurosurgeon who had resigned from his employment. The physician was prohibited from practicing his specialty within a thirty-mile radius of his former employer for a period of two years. The court found that the hospital had a reasonable interest in protecting its patient base and that enforcing the non-compete did not present an undue hardship on the physician, nor was it contrary to the public interest.
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Courts in certain other states have found that public interest considerations weigh heavily against enforcement of physician non-competes. When the Arizona Supreme Court declined to enforce a non-compete between a medical group and one of its shareholders, a pulmonologist, it determined that the special relationship between a doctor and patient is entitled to unique protection. The non-compete at issue prohibited the doctor from working with any competing medical practice within an area of approximately 235 square miles and from treating any patients that he had treated while employed, for a period of three years after his departure from his employer. When evaluating these restrictions, the court found that the former employer’s interests in its patient base and referral sources was protectable, but that other factors, including the rights of patients to choose their own doctors, outweighed those interests.
When evaluating the enforceability of a physician non-compete agreement, it is important to be aware of applicable state law. In the majority of states, where the above three-pronged test applies, courts may consider such factors as the scope -- both in time and geography -- of the restrictions that the non-compete imposes; the extent to which the non-compete precludes the physician from practicing his or her chosen profession; the availability of medical care in the area; and the rights of patients to choose their own doctors.
The information in this document is not legal advice. It is provided for educational purposes only and is not a substitute for professional advice on your specific situation. If would like more information or advice about a particular non-compete agreement, contact Judy L. Polacheck, 617-666-2888 in Massachusetts, or a member of the bar in your state.
Do you moonlight as a way to supplement your salary, pay down your student loans, or build up a little nest egg?
Whatever the reason, when you moonlight, how you're compensated determines how you will be taxed. If taxes are withheld from your pay, you're considered an employee. No taxes withheld means you're an independent contractor. Generally, each employer has a set policy as to whether they compensate their moonlighters as employees or as independent contractors.
There are advantages and disadvantages to being compensated as an independent contractor. Let's take a look at some of the advantages:
So what's the catch? Here are some of the disadvantages of being paid as an independent contractor:
Employee vs Independent Contractor:
Watch Your Withholdings
Even if taxes are being withheld from your moonlighting income, don't automatically assume that enough taxes are being taken out. That's because each employer withholds taxes as if they are your only employer.
Let's say you earn $20,000 from three employers during the year. The amount of federal income taxes withheld from your pay will be significantly less than if you had earned $60,000 from just one employer.
To make matters worse, if you tell your employer you're married, they withhold even less taxes, since the withholding tables for a married person assume your spouse doesn't work.
If you moonlight and get paid as an employee, keep an eye on how much taxes are being withheld. Otherwise, you might get hit with a surprisingly large tax bill on April 15th.
The 40% Rule
Moonlighters who are paid as independent contractors have no taxes withheld. In that case, it's generally a good idea to set aside 40% of what you earn for taxes. Remember, you'll owe federal taxes, state taxes, and self-employment taxes on your earnings.
The taxes you'll owe on your moonlighting income are manageable if you plan ahead. Don't let the possibility of a surprisingly large tax bill deter you from taking advantage of moonlighting or consulting opportunities that may arise.
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