Pennsylvania's New Noncompete Law Changes the Rules for Health Care Employers

Pennsylvania’s new Fair Contracting for Health Care Practitioners Act limits the use of certain restrictive covenants between employers and health care workers and imposes heightened patient notice obligations on applicable employers, starting January 1, 2025. For employment agreements made that day or later, employers may no longer enforce covenants more than one year in duration or in situations where the worker was “dismissed by the employer”—including terminations for cause.

Gov. Josh Shapiro signed House Bill 1633 earlier this month as Act No. 74 of 2024.

The new law includes important definitions. It defines “health care practitioners” as medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified registered nurse practitioners, and physician assistants.

“Noncompete covenant” is broadly defined to include any agreement “which has the effect of impeding the ability of the health care practitioner to continue treating patients or accepting new patients…” It remains to be seen how this will affect the enforcement of non-solicitation agreements, but this broad definition could be construed to bar non-solicitation agreements to the extent they prohibit the departing health care practitioner from continuing to treat their existing patients (or from accepting new patients from their former employer).

The Act also includes patient notification requirements. Within 90 days of a health care practitioner’s departure, employers must provide a notice to any patients the practitioner treated during the past two years. The notice must include:

• That the practitioner departed;
• How the patient may transfer health records to a practitioner other than the employer; and
• That the patient may be assigned to a new practitioner within the existing employer.

Notably, the Act does not address existing state law regarding patient abandonment or other patient notification requirements, nor does it impact the access or privacy of health records under the federal Health Insurance Portability and Accountability Act (HIPAA). As such, meeting the notice requirements set forth above may be sufficient to comply with the Act, but further measures may be required to meet other applicable laws.

The Act’s Limitations

The Act has a number of limitations, including:

• It does not apply to agreements entered into before January 1, 2025;
• Employers may continue to enforce agreements to recover reasonable expenses from health care practitioners if those expenses are (1) directly attributable to the health care practitioner and accrued within three years prior to a voluntary separation; (2) related to relocation, training, and establishment of a patient base; and (3) amortized over a period of no more than five years from the date of the health care practitioner’s separation; and
• The Act does not apply to agreements connected to (1) the sale of a health care practitioner’s ownership interest or all or substantially all of the assets of the business entity; (2) transactions resulting in the sale, transfer, or other disposition of the control of the business entity (i.e., by merger or consolidation); or (3) the practitioner’s receipt of an ownership interest in the business entity. Thus, noncompete covenants may still be enforceable against health care practitioners in such instances.

The Act is yet another strike against restrictive covenants, echoing the legislative shift away from noncompetes across the country. Employers should take immediate action to review their restrictive covenants to ensure compliance by January 1, 2025. Employers should also review internal policies and modify them as needed to conform to the Act’s heightened patient notice obligations. Ballard Spahr’s Labor and Employment Group has significant experience helping employers navigate compliance issues related to noncompete agreements and other restrictive covenants in the health care industry and others.