On July 17, 2024, Pennsylvania Governor Josh Shapiro signed the Fair Contracting for Health Care Practitioners Act (Act 74). This law, which goes into effect on January 1, 2025, introduces significant changes to the contractual and employment conditions for health care practitioners in Pennsylvania.
While it does not impact noncompete covenants entered into before the effective date of the Act, which will remain enforceable to the extent permitted by existing law, it signifies growing discontent with noncompete covenants.
The Act comes on the tail of the issuance of a rule by the Federal Trade Commission (FTC) banning noncompete covenants in employment contracts. It also fills an important gap for Health Care Practitioners since the FTC rule is not applicable to not-for-profit employers, which includes most hospital systems.
ACT 74
In short, Act 74 places restrictions on the ability of employers and certain healthcare practitioners to enter into noncompete covenants (i.e., restrictive covenants). Specifically, it addresses licensed medical doctors, osteopaths, nurse anesthetists, registered nurse practitioners, and physician assistants (“Health Care Practitioners”).
The Act provides generally that a noncompete covenant entered into after December 31, 2024, is contrary to public policy and void and unenforceable. It goes on to identify a number of exceptions to this general rule and provides that an employer may enforce a noncompete covenant only under the following circumstances:
- If the length of the noncompete covenant is no more than one (1) year, provided that the employer did not dismiss the Health Care Practitioner.
- If the noncompete covenant was entered into with a Health Care Practitioner in connection with an interest in a business entity as a result of (a) the sale of a Health Care Practitioner’s ownership interest in a business entity, (b) the sale of all or substantially all of the assets of the business entity, (c) a transaction resulting in the sale, transfer or other disposition of the control of the business entity (including by merger or consolidation), or (d) a Health Care Practitioner’s receipt of an ownership interest in the business entity.
Patient notification requirements are also incorporated. Specifically, the Act requires that within 90 days after the departure of a Health Care Practitioner, employers must notify the Health Care Practitioner’s patients seen within the past year of the following:
- The Health Care Practitioner left the employer;
- The patient may transfer the patient’s health records to another Health Care Practitioner other than with the employer and
- The patient may be assigned to a new Health Care Practitioner within the existing employer if the patient chooses to continue receiving care from the employer.
A last key takeaway from the Act is that it does not prohibit employers from contracting to recover reasonable expenses from a Health Care Practitioner if the expenses are:
- Directly attributable to the Health Care Practitioner and accrued within the three (3) years prior to separation, unless separation is caused by dismissal of the Health Care Practitioner.
- Related to relocation, training, and establishment of a patient base.
- Amortized over a period of up to five (5) years from the date of separation.
Looking Ahead
We anticipate a plethora of litigation to come as employers grapple with the broad language of the Act and the unanswered questions it raises. Notably, the Act fails to address patient non- solicitation provisions, which commonly go hand in hand with noncompete covenants, and fails to adopt any penalty for employers who do not comply.
Noncompete covenants entered into before the Act’s effective date of January 1, 2025, are not impacted by this Pennsylvania law and remain enforceable to the extent permitted by existing law.
