Indiana likely to wait on further noncompete legislation
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Indiana lawmakers went on the offensive when they limited physician-employer noncompete agreements for the second time in three years — but with a lawsuit pending and an industry adjusting, they’re sitting back to observe before doing more.
And still-unfolding national efforts could supersede it all.
“I’m hopeful, maybe, but I think it’s more of a sit and wait,” said Sen. Justin Busch, the Fort Wayne Republican who authored this year’s legislation.
Noncompete agreements bar employees who leave their jobs from working in similar positions within a certain timeframe, and often, a geographical range. In Indiana, physicians working under such agreements must purchase their freedom for a “reasonable” price.
But as of July, they may have more options.
That’s when Busch’s Senate Enrolled Act 7 went into effect. It banned new agreements for primary care physicians, blocked enforceability for all physicians in some cases and outlined a mediation process for physicians and employers struggling to agree on a buyout price.
Good for whom?
Indiana — in the midst of a crisis over the cost of health care and persistently low public health metrics — has limited its noncompete-related legislative efforts to the health care industry.
The industry says it uses such agreements to protect the sizable investments to support physicians: buying equipment, maintaining specialized workspaces and so on.
But there’s evidence the agreements hinder worker mobility and decrease wages, according to Kenneth Dau-Schmidt, a labor and employment law professor at the I.U. Maurer School of Law.
And some question the degree to which physicians willingly and knowingly agree.
Larger healthcare organizations prefer to use standardized template agreements with terms consistent across an entire staff, said Kathleen DeLaney, an Indianapolis labor attorney.
“They like to say, ‘We don’t make exceptions, because if we make an exception for one doctor, then the next doctor is going to want an exception,’” DeLaney said. “So the doctor’s negotiating leverage is somewhat limited by that.”
And, she added, doctors often sign without getting legal advice: a no-no, since they don’t always understand the implications of the agreements.
And while many employers will tell applicants the job comes with a noncompete agreement, some don’t, said Dau-Schmidt. He didn’t refer specifically to Indiana employers.
“Some of them will wait until after you have taken the job,” he said. “At that point, you’ve already moved your family, you’ve already given up your old job. Unless you want to immediately start looking for another job, you’re going to sign it.”
Fighting over the need for the noncompete
Lawmakers first took on the topic in 2020, with legislation stipulating various provisions a physician’s noncompete agreement must have to be enforceable.
Most relate to the departing doctor’s patients and medical records. One requires that agreements contain the option of “buying release at a reasonable price” — but didn’t originally define what counts.
House Enrolled Act 1004 applies only to noncompete agreements that physicians have entered since July that year.
Lawmakers attempted to revisit the topic in later legislative sessions.
Success took three years, hours of discussion and compromise: employers worried the legislation would go too far, while doctors and advocates feared it wouldn’t do enough.
Lawmakers ultimately carved specialized physicians out of the ban on new noncompete agreements — applying it only to primary care physicians — but kept the scenarios that would invalidate an agreement applicable to all.
Those are if an employer terminates a physician’s employment “without cause,” if a physician leaves the job “for cause,” or if the contract is expired and fulfilled.
Rep. Ethan Manning, a House cosponsor of the bill, said the term “primary care” can be defined “pretty broadly.” And he hoped physicians would use that language to their advantage during negotiations.
“As far as litigation goes: personally, I hope it’s interpreted as broadly as possible,” Manning, R-Logansport, added.
Legislation sparks lawsuit and voluntary changes
Days after SEA 7 went into effect, a Hoosier doctor sued his employer to get out of a noncompete agreement: the law’s first real-world test.
David Lankford is a Fort Wayne physician who previously worked for Lutheran Health System. In his lawsuit, he alleged that Lutheran laid off its non-intensive pediatric hospitalists and shifted those doctors’ work to him and other intensivists.
He — and his lawyer, DeLaney — say that work was outside the scope of his contract, and argue that makes his noncompete agreement unenforceable under the new law.
Lutheran, meanwhile, says there was no breach of contract and the noncompete agreement is still effect. And the system says it was “directly harmed” when Lankford went to work for a “direct” competitor.
The Indiana Capital Chronicle is an independent, not-for-profit news organization that covers state government, policy and elections.