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Annals of Internal Medicine

The Past, Present, and Future of Restrictive Covenants in Medicine in the United States A Narrative Review Anand Prasad, MD, MBA; Rishi Goswamy, MHA, BS; and Roger Bresnahan, BA, JD

Restrictive covenants (RCs) are clauses placed into employment agreements across various industries, and they are frequently used in health care — speci fi cally within physician contracts. Given the most recent guidance and rule determined by the Federal Trade Commission in April 2024, the relevancy of RCs in health care has come under even more scrutiny in the latter half of 2024. This review will focus on the history of RC law and review the value of these clauses A topic that affects nearly all physicians in the United States is restrictive covenant (RC) laws — also commonly known as “ noncompete ” clauses within contracts. Restrictive covenant – related regulations are ubiquitous across various industries and are not exclusive to health care. The implications associated with RCs can be important, especially for physicians. As most physicians in the United States are no longer self employed, the issues related to preventing movement from one practice setting to another are highly relevant (1). In addition, the opportunity costs associated with adhering to or deviating from RCs for both the employer and the individual physician are not trivial. From an employer ’ s perspective, reducing competition and discouraging turnover have direct economic bene fi ts. From the physician's perspective, the lack of mobility can affect salaries and professional growth and add to burnout. The current review will outline the history of RCs, the perspectives of key stakeholders, and the cur rent legal environment. The latter discussion will center on the Federal Trade Commission ’ s (FTC) recent ban on noncompete clauses issued in 2024 and the subse quent legal challenges (2 – 4). H ISTORICAL P ERSPECTIVES ON RC S The challenge of balancing the employer ’ s inter ests with the worker ’ s freedoms is not a new struggle. Legal cases have been referenced going back to the 15th century in England under the rule of Henry V. In 1414, John Dyer, aptly named for his profession as a wool dyer, was the central fi gure in the fi rst recorded noncompete case (5). Dyer had learned under his mas ter ’ s apprenticeship, and on completion of his training, was instructed not to work in the same profession for 6 months in the same town. This RC, arguably one of the very fi rst of its kind, was centered on a bond between former apprentice and master. Of note, the elements of the master ’ s demands highlighted key components of

from the perspectives of the employer, practicing phy sician, and patient. We also provide the stakeholder responses to both the ban and the subsequent block age of enforcement by a Texas federal court in August of 2024. Ann Intern Med. 2025;178:70-74. doi:10.7326/ANNALS-24-01670 For author, article, and disclosure information, see end of text. This article was published at Annals.org on 3 December 2024. modern RCs: temporal (duration of work-related restric tion) and geographic (same town) restriction. Present day RCs also often include “ buyout ” clauses that stipulate monetary amounts that the worker can pay the employer to become free of the restrictions. Dyer ’ s master eventu ally sued him for breach of the agreement in the Court of Common Pleas. Dyer ’ s defense centered on denial of the claim that he had violated the initial agreement, and the Court decided the case in Dyer ’ s favor. The expert con sensus on the case was that Dyer ’ s argument had little to do with the outcome, but rather the court had no prece dent to decide the case in his former master ’ s favor. The fundamental con fl ict between competing interests of the employer and the employee were on display in Dyer ’ s case and still hold true today. The employer ’ s interests were largely 2-fold in both protecting their investment, represented by the worker that they had trained and pro vided with important trade knowledge, and limiting com petition in the region by controlling the ability of the worker to enter the free market. This case provided deca des of precedent in European law. Throughout the 18th and 19th centuries, subsequent court cases dealing with professions as varied as bakers to arms dealers sought to weigh the freedoms of workers against the business interests of competitors. Often in question during these cases was the validity and nature of the contracts between employer and employee. The case involv ing a disagreement between English bakers, Mitchel v. Reynolds , is often referenced as the basis for non compete regulation in the United States (5). To sum marize this case, one baker leased a bakery to another with the condition that the lessee would not start an independent bakery in the same region for 5 years after the signing. The lessee broke the agree ment, and the owner sued. The court, rather than fol lowing the Dyer decision absolutely, examined the noncompete in detail on intent and merit and found it to be reasonable and therefore enforceable. The Mitchel decision would go on to shape trade and

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