Evolving Restrictions on Noncompetition Agreements for Indiana Doctors

Noncompetition agreements with doctors other than primary care physicians may still be enforceable. However, SEA 7 invalidates all doctors’ noncompetition agreements in circumstances where: (1) the physician terminates his or her employment for cause; (2) the employer terminates the physician’s employment without cause; or (3) the employment contract has expired, and both the physician and the employer have fulfilled their contractual obligations. SEA 7 does not define “cause,” so it could be helpful to doctors and employers to define that term in their employment contracts.

SEA 7 expands on a law that was passed in 2020, which is codified as Indiana Code § 25-22.5-5.5. Under that law, all Indiana physician noncompetition agreements are required to include certain provisions about how a physician’s departure from a practice would be handled. Additionally, all physician noncompetition agreements are required to include a “buyout” provision, which would allow doctor to “purchase a complete and final release from the terms of the enforceable physician noncompete agreement at a reasonable price.” Indiana Code § 25-22.5-5.5-2(a)(4).

Given how Indiana law has evolved, physician noncompetition agreements now fall into three categories, based on when they were entered. For all three categories, SEA 7 invalidates agreements where: (1) the physician terminates his or her employment for cause; (2) the employer terminates the physician’s employment without cause; or (3) the employment contract has expired, and both the physician and the employer have fulfilled their contractual obligations. Aside from this generally applicable part of SEA 7:

• Agreements entered into on or after July 1, 2023, are subject to both SEA 7 and Indiana Code § 25-22.5-5.5. They are subject to both the primary care physician exclusion in SEA 7 and the buyout requirement in Indiana Code § 25-22.5-5.5.
• Agreements entered into between July 1, 2020 and June 30, 2023, are subject to Indiana Code § 25-22.5-5.5 (buyout) but not to SEA 7 (primary care exclusion). They are subject to the generally applicable portion of SEA 7.
• Agreements entered into before July 1, 2020, are subject to Indiana common law. Those agreements will be enforceable as long as they meet the generally applicable part of SEA 7 and they satisfy common law reasonableness requirements.

While Indiana’s new laws have limited physician noncompetes, related federal regulations have been developing. In January 2023, the Federal Trade Commission issued a proposed rule that could restrict noncompetition agreements even further that Indiana already has. Under the FTC’s proposed rule, physician noncompetition agreements (as well as those for most other workers) would be abolished.

The FTC’s proposed rule is not scheduled to be voted on until April 2024. If the FTC’s rule is adopted, it will preempt (replace) Indiana’s laws to the extent the FTC’s protections are broader than those in Indiana’s laws.

If you have questions about noncompetition agreements, you are welcome to reach out to Amanda Couture at amanda@paganelligroup.com.