Vague statute leads to litigation for clarification: Physician noncompete statute facing questions from both sides

A new law went into effect in Indiana last month that eliminates the use of noncompete agreements in physicians’ contracts.

The stated goal of the law is to allow physicians to be able to continue working in the same community rather than having to move away to find new jobs due to noncompete agreements.

However, the legislation has raised many questions for attorneys and clients on both sides of the issue.

Vagueness

Senate Enrolled Act 7 prohibits primary care physicians and employers from entering into noncompete agreements. Specifically, SEA 7 provides that an existing noncompete isn’t enforceable if the employer terminates without cause or the employee terminates for cause an employment contract. A third provision provides that a noncompete is unenforceable if the employment contract has expired and the physician and employer have fulfilled the obligations of the contract.

Some attorneys say the legislation is vague because it doesn’t define “without cause” and “for cause.”

Zachary​ Ahonen with Jackson Lewis P.C. in Indianapolis said his office has been getting calls from clients wanting clarification on the statute.

“One of the main causes of concern, worry and questioning from people we’re seeing focuses on just understanding the scope of the three different kinds of regimes or processes you would go through, depending on when the noncompete agreement was entered into,” Ahonen said.

Robert Seidler, principal and office litigation manager in Jackson Lewis’ Indianapolis office, added that the firm has received questions from employers with differing concerns.

“We’ve received a lot of inquiries from employers on both sides, right, folks that are looking to hire primary care physicians and folks that are looking to protect the interests that they’ve invested in with primary health care physicians,” Seidler said.

SEA 7 isn’t the first legislation to pass out of the Indiana General Assembly addressing noncompete agreements. In 2020, House Enrolled Act 1004 allowed for physicians to buy out their contracts for a “reasonable price.”

Seidler said that when you’re dealing with salaries in this area, a “reasonable price” leaves a lot of questions.

“So you take it to litigation — be careful what you ask for,” he said. “Because if they don’t come out with the decision that’s in your favor on what a reasonable price is or what good cause is under the statute, then you’re stuck with that.”

Ahonen said one of the only ways to fully address the vagueness and questions would be more legislation.

“Amending the statute to include definitions of words like ‘cause,’ what’s ‘for cause’ or ‘without cause,’” he said. “As the statute references, does the term ‘noncompete’ include just traditional noncompetition restrictions? Or does it include nonsolicitation or potentially confidentiality restrictions?”

Another way is litigation, but both Jackson Lewis attorneys said as a rule, these types of cases rarely get handled in a courtroom.

In court

But there’s already an exception to that rule.

One lawsuit challenging SEA 7 was filed in the Allen Superior Court just days after the new statute went into effect July 1. That case is David Lankford, D.O. v. Lutheran Medical Group, 02D02-2307-PL-000261.

Dr. David Lankford, a pediatric intensivist, is requesting declaratory and injunctive relief against his former employer, Lutheran Medical Group. Lankford is suing to stop the enforcement of a noncompete clause after he terminated his employment agreement “for cause.”

Lankford alleges Lutheran continues to interfere with his attempts to provide care to children at another health care system.

He had renewed his employment agreement with Lutheran in November 2020, including the noncompete clause. But when Lutheran began laying off pediatric hospitalists in October 2022, Lankford says he was required to perform additional duties outside the scope of the agreement, so he asked to renegotiate.

Lutheran declined to renegotiate, so Lankford sent a letter in December saying Lutheran had breached the agreement. Lutheran denied any breach, so Lankford terminated the agreement “for cause.”

“I am a physician committed to providing the highest quality specialty care to Allen County’s children,” Lankford said in a statement released by his attorney, Kathleen DeLaney of DeLaney & DeLaney LLC in Indianapolis. “Lutheran’s continued interference with my ability to provide that care harms no one more than the children who need access to health care. I hope that by standing up to Lutheran, I can embolden other physicians to stand up to health care systems which seemingly focus more on their financial bottom lines than on patient access to quality health care.”

The Allen County Commercial Court held a hearing on the preliminary injunction motion Aug. 11. The same day, Judge Craig Bobay issued an order saying he would take the motion under advisement.

Bobay said his ruling would not be due until Sept. 22. Lankford asked the judge to issue a temporary restraining order until he rules, and Bobay took that request under advisement, as well.

Indiana impact

Attorney John Haskin with John H. Haskin & Associates LLC said attorneys don’t have noncompete clauses in their agreements because they create attorney-client relationships and want to maintain those.

Haskin said it’s the same principle with primary care physicians.

“Patients should have the right to choose the physician that they’re most comfortable with that they want,” he said.

Haskin said has been getting calls from physician assistants, nurse practitioners and other medical professionals inquiring if the statute applies to them, and he tells them it does not.

“We utilize nurse practitioners and physician assistants and advanced practice registered nurses — the medical profession utilizes them in a supervised medical doctor role, and I think that they should have at least the same freedom or mobility as the physicians,” Haskin said.

He noted that there are only four states that have banned all noncompete agreements: California, Minnesota, North Dakota and Oklahoma.

In Indiana, Ahonen and Seidler of Jackson Lewis both said employers are now revisiting their primary care physician contracts to comply with the law.

The effects of the law are seemingly already being felt.

According to The Associated Press, Eskenazi Medical Group announced in June that it would remove physician noncompete clauses from their agreements.

Seidler said that along with companies reexamining their contracts, SEA 7 presents an opportunity for employers to look at what they can do to protect confidentiality, nonsolicitation and other restrictions.•