By: Chad J. Sullivan and Lucero Tennis Kieffer
On May 4, 2023, Governor Holcomb signed into law Senate Bill 7, which will take effect on July 1, 2023. The new law significantly restricts the enforceability of physician non-compete agreements in Indiana, both existing and future agreements. Specifically, the statute (i) provides an outright ban of entering into noncompete agreements with primary care physicians after July 1, 2023, (ii) renders existing noncompete agreements unenforceable under certain conditions, and (iii) specifies a process by which a physician or employer may pursue mediation to determine a reasonable buyout price. For a full summary of SB 7, please review our prior post (Indiana Healthcare Employers Beware—Greater Protections for Physicians are on the Horizon). However, the statute creates as many questions as it does answers. Below are some questions that have already been presented to us.
Question: A physician entered into an employment contract that contained a non-compete on August 1, 2022. The contract had a one-year term and ends on July 31, 2023. The contract does not contain an automatic-renewal provision. After July 31, 2023, will the non-compete provision be enforceable?
Question: A physician entered into an employment contract that contained a 2-year non-compete on May 1, 2021. The term of the contract was for one (1) year and the contract did not contain an automatic-renewal provision. The contract ended on April 30, 2022. Is the non-compete still enforceable after June 30, 2023?
Question: Does the statute define what “for cause” or “without cause” means?
Question: A physician entered into an employment contract that contained a non-compete on July 1, 2021. The physician was terminated on July 1, 2023, and the parties agreed to enter into a severance agreement. On July 2, 2023, the parties entered into the severance agreement. The severance agreement stated that the physician’s employment ended “due to a mutual agreement between the parties” and “was terminated without cause.” Is the non-compete still enforceable?
Question: Is there anything I should change when drafting physician employment agreements because of the new law?
Some of these questions can be answered from the language of the statute (e.g., there is no definition for “for cause” in the statute), whereas a number of them will be left open to interpretation until tested in court. Should you have any questions regarding this new law, please reach out to one of our Labor and Employment attorneys.