Help regarding practice aquisition

[Catarockin]

Hi everyone,
I'm about a year into my first post-residency private practice job. I've really enjoyed my first year of work as an employed/non-partner track comprehensive ophthalmologist.

Unfortunately, my boss/owner is selling the practice, probably as an asset sale, but maybe as an equity sale. I like some of the potential buyers, but not all of them.

My question is: what is the likelihood that my contract will require me to stay on with the new owner, if this is an asset sale? I have a non-compete. I'm hoping to re-negotiate a partner track position depending on who comes on board. I do not want to buy it. Yes, I am getting a healthcare contract lawyer.

Many thanks for your thoughts.

 

[orbitsurgMD]

Everything depends on your present contract's language and your particular state's court practices on enforcing non-compete terms. Most contracts allow you to resign with specified terms of notice. Many have terms specifically addressing assignability ("heirs and assigns") and also severability of terms in the event a court finds parts of your contract unenforceable. This is where a lawyer's knowledge is helpful.

I doubt your contract will require you to stay. Depending on the terms, your contract's non-compete terms may or may not survive the sale, and a lawyer can help you understand where you sit. Depending on the interests of the prospective new owners, your leverage may be your willingness to leave if the new owners want stability of the practice in retaining its doctors.

When you say you don't want to buy it, do you mean an outright buyout, or to buy any part of it? Most partnership tracks anticipate a buying-in process, at least of the assets. It would be hard to imagine a partnership track not involving some form of buy-in, unless the practice business was structured to be limited to the practice name with its assets being cash on hand and accounts-receivable, everything else (buildings, equipment, employees) being on a lease or lease-service relationship. Some do this, though.

 

[KHE]

It is also nearly inconceivable that a court would enforce a non compete agreement where the person was only there for a year.

 

[Catarockin]

Thank you both for your replies. I am not interested in buying it outright, but would consider a buy-in with the right partner (s). I agree, I think the non compete will be difficult to uphold; any lawsuits go to arbitration, unfortunately, so I'll try to avoid that. Thank you all!

 

[Super66]

It is also nearly inconceivable that a court would enforce a non compete agreement where the person was only there for a year.

Curious what makes you say this. I have little knowledge on the enforceability of non-competes...

 

[hello lady!]

Thank you both for your replies. I am not interested in buying it outright, but would consider a buy-in with the right partner (s). I agree, I think the non compete will be difficult to uphold; any lawsuits go to arbitration, unfortunately, so I'll try to avoid that. Thank you all!

What's the difference between buying in now vs buying in later with a new partner? I think you're making a huge financial mistake with this attitude.

 

[MstaKing10]

You will have the option to stay on or leave. Unless there was specific language in your contract pertaining to acquisitions I believe your contract is cancelled if you chose to leave and non-compete is null and void. Look at your contract carefully and consult an experienced attorney.

I don't understand the buy in piece. Are you saying you prefer to stay as employee and not buy in? Or want to be partner but not buy in? A little confused on that end.

Most important is to know the terms of the sale and what will be your compensation in the case of a sale. Usually, your compensation will be increased but without partnership you will hit a ceiling much faster. There may be some equity given or sold to you as part of the sale as well. Depending on the buyer, you may find working there to be no different than your first year as an employee. Don't assume the worst (but be prepared).

 

[KHE]

Curious what makes you say this. I have little knowledge on the enforceability of non-competes...

Well, every state is slightly different but in general, non compete agreements are difficult to enforce.

And when they are, one of the tenants of them is that they have to be "reasonable." Courts would be unlikely to take the view that a 2, 3, or 5 year non compete is reasonable for a doctor who was employed at a practice for a relatively short time.

 

[i-doctor]

I do not know all the specifics of your situation, but I feel compelled to reply. It sounds like the owners of the practice are planning on selling to Private Equity. If that’s the case, you are possibly in a very strong position. Why? For two reasons: First, the practice owners are likely getting a 8-10x multiple (or so) upfront on the practice’s profits. So if your work generated, say, $400K worth of profit for them last year, they will be rewarded with and extra $3.5Mil or so of buyout money. Second, the Private Equity buyer loves younger guys like you in the practice to guarantee continuity of the practice in case the older guys take the buyout money and then quit. Your being there helps protect their investment. So, in a sense, you’ve been “played”. The owners have put themselves in the best position to sell the practice now.
If the above is true, it is critical for all involved that you stay on with the practice. In fact, were you to announce now that you are leaving, the owners could stand to lose $3.5Mil (or 8-10x whatever the amount of the net profit the practice made off your work last year), since the Private Equity buyer would then lower the buyout amount.
So what do you do now? It depends how much you want to stay in this practice and how important it is for you to live in your city for the long term. One thing NOBODY will compromise on is the non-compete. Both your current boss and the future owners need to protect their investment. I have a friend (non-Ophthalmologist) who was in the exact same situation. One with big “cahonas”. He told the current doctor owners that he would not sign an employment agreement with the new buyout P.E. company and would not stay with the practice unless he received a “retention bonus” at the time of the buyout. He got the owners to pay him (almost $300K) to stay!! You possibly might have the same clout. You can tell your current doctor owners that you want, say, $200K of their buyout money as a retention bonus in order to stay and sign an employment agreement with the new P.E. company. Yep, you heard me right. Make them pay up!!! They might get very angry at first and call it “blackmail”. But remember that hiring YOU put them in a position to make extra millions. In the end, they will NOT jeopardize losing the extra $3.5M (or whatever) and perhaps the whole deal, and they will pay you the $200K retention bonus. (For example: if there are two partners, they each would make $100K less from the buyout, so at the final monetary transaction they might each take home $2.7M upfront instead of $2.8M, while you get $200K … you get the idea…). The Private Equity buyout company could care less how the buyout money is split up between the doctors. In fact, your new P.E. owners wouldn’t even be upset, and as businessesmen they would likely greatly respect your business acumen.
(Also, keep in mind that I just picked a random number as an example. Perhaps they only made net $150K off your work last year, but that would still correspond to $1.2M of extra buyout money).
HOWEVER, even if you could do this, it doesn’t mean you should. Maybe you don’t like confrontation and aren’t the negotiator-type person. But I just want you to know that you might be in a very strong position!! Especially now, since Biden’s proposed tax plan will double the capital gains tax rate on gains over $1 Mil. So they want this deal done ASAP before the tax law change. Older Ophthalmologists everywhere are rushing to sell to their practices now to P.E. (Younger guys have been left hung out to dry. The new paradigm is for practices to sell to big business for quick cash and no longer to younger associates. And… in case you’re wondering, our practice sold to P.E. over 3 years ago, so I know a lot about this). That’s why you need to have a lawyer. Bring the idea up to the lawyer. Let him be the tough negotiator, if necessary.

 

[TheLesPaul]

Well, every state is slightly different but in general, non compete agreements are difficult to enforce.

And when they are, one of the tenants of them is that they have to be "reasonable." Courts would be unlikely to take the view that a 2, 3, or 5 year non compete is reasonable for a doctor who was employed at a practice for a relatively short time.

This is bad advice. Non-compete agreements are perfectly enforceable in certain states and it has little to do with how long you have been at the practice and more to do with how tightly the initial contract was written. 2 years has been upheld in courts in multiple states for physicians. Moreover, if your contract also provides the practice with an injunction preventing you from practicing until the ruling is settled, then it really doesn't matter if the agreement is upheld or not because they can drag it out for 2 years in a post-COVID glacial judicial system anyway.

 

[dantt]

This is bad advice. Non-compete agreements are perfectly enforceable in certain states and it has little to do with how long you have been at the practice and more to do with how tightly the initial contract was written. 2 years has been upheld in courts in multiple states for physicians. Moreover, if your contract also provides the practice with an injunction preventing you from practicing until the ruling is settled, then it really doesn't matter if the agreement is upheld or not because they can drag it out for 2 years in a post-COVID glacial judicial system anyway.

This is correct. It's whatever the contract says. However, I have never heard of a contract providing an injunction preventing the physician from practicing. What usually happens is the contract either specifies an amount of liquidated damages or they can sue the physician for unspecified damages.

 

[KHE]

This is bad advice. Non-compete agreements are perfectly enforceable in certain states and it has little to do with how long you have been at the practice and more to do with how tightly the initial contract was written. 2 years has been upheld in courts in multiple states for physicians. Moreover, if your contract also provides the practice with an injunction preventing you from practicing until the ruling is settled, then it really doesn't matter if the agreement is upheld or not because they can drag it out for 2 years in a post-COVID glacial judicial system anyway.

In no way am I suggesting people sign non compete agreements expecting them to be blindly tossed in the event of a disagreement. But having seen six non-compete agreements in three different states tossed instantly, I have come to learn that most of them are simply not enforceable.

They are almost like pre-nuptual agreements in a marriage. Just about any decent attorney can tear them apart even if a court doesn't summarily dismiss them out of hand.

Most of them are not reasonable and most of them aren't enforceable. In general, a non-compete is supposed to have a value assigned to it. This is how it's normally accounted for when practices are bought and sold. If you are not getting something of value in exchange for agreeing to the terms of a non-compete agreement, it's likely not enforceable. It's not supposed to be used merely as a condition of employment.

 

[MstaKing10]

In no way am I suggesting people sign non compete agreements expecting them to be blindly tossed in the event of a disagreement. But having seen six non-compete agreements in three different states tossed instantly, I have come to learn that most of them are simply not enforceable.

They are almost like pre-nuptual agreements in a marriage. Just about any decent attorney can tear them apart even if a court doesn't summarily dismiss them out of hand.

Most of them are not reasonable and most of them aren't enforceable. In general, a non-compete is supposed to have a value assigned to it. This is how it's normally accounted for when practices are bought and sold. If you are not getting something of value in exchange for agreeing to the terms of a non-compete agreement, it's likely not enforceable. It's not supposed to be used merely as a condition of employment.

Interesting. For a fresh out of residency employee this must be tough and expensive to navigate with an attorney. What is your experience with how much time and money it costs to have these non-competes thrown out?

 

[KHE]

Interesting. For a fresh out of residency employee this must be tough and expensive to navigate with an attorney. What is your experience with how much time and money it costs to have these non-competes thrown out?

Unfortunately, like most things in the legal universe, it depends. I've seen them summarily dismissed with almost no legal costs at all. I've seen a couple be dragged out a little bit longer which cost a few thousand.

For someone fresh out of residency though, I think the important thing is to not look at non-compete agreements as a fait accompli. They are negotiable and you should be compensated appropriately for agreeing to one.

 

[dantt]

Unfortunately, like most things in the legal universe, it depends. I've seen them summarily dismissed with almost no legal costs at all. I've seen a couple be dragged out a little bit longer which cost a few thousand.

For someone fresh out of residency though, I think the important thing is to not look at non-compete agreements as a fait accompli. They are negotiable and you should be compensated appropriately for agreeing to one.

I've never seen a restrictive covenant specify appropriate compensation for agreeing to one other than having a job. Can you give examples of appropriate compensation?

 

[TheLesPaul]

This is an interesting discussion and the part of your initial statement that I took issue with, was your statement that "every state was slightly different".

In CA, restrictive covenants are not enforceable, period. In TX, restrictive covenants for physicians are not enforceable, period. In the Northeast (NY/NJ/PA/etc), restrictive covenants can be enforceable and courts have upheld 10 miles, 2 years, liquidated damages, and injunctive relief in varying combinations to prevent a physician from practicing within the non-compete area. The only consideration necessary to make the contract valid was employment.

So it seems to me that states are wildly different and the exact wording of the contract makes a huge difference (as well as the covenant area -- rural vs urban, legal precedent in the state, etc.). So I would not be glib about this. This is not meant to dissuade anyone from trying to fight such a covenant, but more to implore those looking at employment offers to seriously consider the terms of the covenant and not assume they are "non enforceable". It can take significant time and expense to fight them.

 

[dantt]

This is an interesting discussion and the part of your initial statement that I took issue with, was your statement that "every state was slightly different".

In CA, restrictive covenants are not enforceable, period. In TX, restrictive covenants for physicians are not enforceable, period. In the Northeast (NY/NJ/PA/etc), restrictive covenants can be enforceable and courts have upheld 10 miles, 2 years, liquidated damages, and injunctive relief in varying combinations to prevent a physician from practicing within the non-compete area. The only consideration necessary to make the contract valid was employment.

So it seems to me that states are wildly different and the exact wording of the contract makes a huge difference (as well as the covenant area -- rural vs urban, legal precedent in the state, etc.). So I would not be glib about this. This is not meant to dissuade anyone from trying to fight such a covenant, but more to implore those looking at employment offers to seriously consider the terms of the covenant and not assume they are "non enforceable". It can take significant time and expense to fight them.

Mostly agree with what you stated, minus Texas. I know a few docs who did indeed move out of the non compete radius. It seems the main thing is that the contract specifies an amount to buy out of the non compete (millions).

Are Non-Compete Agreements Enforceable in Texas? (2026)

Texas law makes non-compete agreements enforceable if they are: Accompanied by or part of an otherwise enforceable agreement; Supported by valid consideration (i.e. something of value given to the employee), and; Reasonable in time, geographic scope, and activities to be restrained.

www.texasnoncompetelaw.com

 

[Dusn]

The bottom line is that you need to have the option to leave as negotiating leverage.

If you cannot move then I would contact your local VA to see if you could work there if the non-compete becomes an issue (non-competes do not apply to employment with the federal govt). I think non-competes might not apply to other organizations that are not competing for patients, such as Kaiser, as well.

 

[KHE]

I've never seen a restrictive covenant specify appropriate compensation for agreeing to one other than having a job. Can you give examples of appropriate compensation?

Too many variables to give an example but it should be included in part of your overall compensation package.

A non compete that is 20 miles for 5 years is worth much more than one that is one mile for one year. (yes, I know that one mile in North Dakota is not the same as one mile in New York City.). So it depends on your location, the competitiveness of that market, etc. etc.

The only point I'm trying to make is to encourage people to not just accept an onerous non compete agreement as a fait accompli. Think of it like when professional athletes and sports teams negotiate a no trade clause in their contracts. It's worth something. Don't be afraid ask for just compensation for such a thing.

 

[orbitsurgMD]

This is correct. It's whatever the contract says. However, I have never heard of a contract providing an injunction preventing the physician from practicing. What usually happens is the contract either specifies an amount of liquidated damages or they can sue the physician for unspecified damages.

The injunction is usually an after-the-fact action by the former employer. Courts will not usually entertain a petition/suit to enjoin unless you are already doing something the contract claims is a violation of its non-compete terms, presumably practicing outside the employment of the employer within the specified term and distance/place in the contract.

Many states will find non-compete terms at least partially enforceable. Some states allow by statute the privilege of trial judges to re-draw terms in a non-compete agreement to something less burdensome to the former employee but still enforceable. These are referred to as "blue pencil" states. What they won't do is increase any of the restrictions on the departing employee.

 

[Catarockin]

Thanks everyone for your constructive input. I was able to win some small victories in my employment situation. Without saying too much, here are some tokens I've learned from this process:

1. Check your contract for an assignability clause. If both employer and employee must agree to a new employment assignment, then no one will hand your contract to a new employer without your consent.

2. Depending on your state, if you are able to rewrite/ "reinstate" your contract as opposed to just writing an addendum, there may be some legal flexibility in getting out of your restrictive covenant. Or to word that differently, the restrictive covenant might not be enforceable under a new contract between the same parties without a "bona fide advancement."

3. There's huge variability among lawyers and what they know. Find one who has experience with healthcare law and practice acquisition. Establish a relationship with a good lawyer early in your career, especially in a small town, because conflicts of interest can shut you out of good representation when you need it.

 

[dantt]

Congratulations. Indeed the correct phrasing in your contract should read "neither party may assign nor delegate any of its rights or obligations hereunder without written consent of the other party." This does not fully protect you as many (most) practice acquisitions if done properly keep the employer intact and instead set up a management contract to circumvent corporate practice of medicine laws. From my younger naive days even with review by a highly regarded attorney, never agree to an unrestricted restrictive covenant (whether voluntary or involuntary, and whether with and without cause, and regardless of who initiates the termination).

Thanks everyone for your constructive input. I was able to win some small victories in my employment situation. Without saying too much, here are some tokens I've learned from this process:

1. Check your contract for an assignability clause. If both employer and employee must agree to a new employment assignment, then no one will hand your contract to a new employer without your consent.

2. Depending on your state, if you are able to rewrite/ "reinstate" your contract as opposed to just writing an addendum, there may be some legal flexibility in getting out of your restrictive covenant. Or to word that differently, the restrictive covenant might not be enforceable under a new contract between the same parties without a "bona fide advancement."

3. There's huge variability among lawyers and what they know. Find one who has experience with healthcare law and practice acquisition. Establish a relationship with a good lawyer early in your career, especially in a small town, because conflicts of interest can shut you out of good representation when you need it.