We are Colorado lawyers and typically don’t appear in cases outside of Colorado. Nonetheless, we monitor developments in noncompete law in other states, particularly in the states near Colorado. Those developments often expose unresolved issues in Colorado, or highlight choices made in Colorado’s noncompete statute and caselaw.
In 2015, health care practitioners in New Mexico caught a break when New Mexico adopted a new statute that limits the enforcement of noncompete agreements against them. In general, the New Mexico law bars the enforcement of noncompetes against health care practitioners, but allows the recovery of relocation expenses and signing bonuses, authorizes the enforcement of non-solicitation provisions and allows the recovery of reasonable liquidated damages. About twenty five years ago, Colorado adopted legislation that bars the enforcement of noncompetes against physicians. The impetus for the legislation in the two states appears to have been similar. Both states sought to encourage physicians to remain in the state and to continue to practice medicine, particularly in rural areas.
There are significant and revealing differences, however, in the legislation adopted by the two states.
Colorado’s ban on physician noncompetes is broader than New Mexico’s in two ways. First, Colorado’s ban covers a wide range of agreements that could include a noncompete. It covers employment, partnership and corporate agreements. (The statute requires that these agreements, however, be “between physicians”. That limitation raises questions in Colorado, because hospitals, among others, are permitted to employ physicians, and the ban on noncompetes with physicians may not apply to those contracts.) New Mexico’s new law, on the other hand, focuses on noncompetes in employment agreements. The New Mexico statute does not apply to health care practitioners who are shareholders, owners, partners or directors of a health care practice.
Second, New Mexico law allows for the enforcement of nonsolicitation agreements against physicians for a year after the last date of employment. A physician in New Mexico presumably could quit his job and open a new practice but couldn’t actually solicit the patients that he or she had treated while employed. Colorado’s statute doesn’t speak to nonsolicitation agreements for physicians. But nonsolicits in Colorado are analyzed as a form of noncompetition agreements, and it is unlikely that a nonsolicitation agreement could be enforced. A physician in Colorado might be able to solicit his former patients so long as the solicitation was done after his employment terminated and so long as the physician didn’t use confidential or proprietary information to make the solicitation.
While both states bar enforcement of noncompetes against physicians, the New Mexico law covers other professionals. In this sense, the new Mexico statute is broader than Colorado’s. New Mexico bars the enforcement of noncompetes not only against physicians but also against dentists, osteopathic physicians, podiatrists and certified registered nurse anesthetists. Colorado’s prohibition, on the other hand, only bars the enforcement of agreements that restrict the right of a physician to “practice medicine”. The “practice of medicine” is defined under the Colorado Medical Practices Act, and generally isn’t considered to include the work performed by:
- Professional nurses
New Mexico’s law also appears to be broader than Colorado’s because it covers any “written contract to which a health care practitioner is a party”. Colorado’s statute, on the other hand, only bars the enforcement of agreements that restrict the right of a physician to practice medicine. A physician might be employed in Colorado in a role that did not involve the practice of medicine. A noncompete in those agreements would not be barred under Colorado’s statute.
Both states allow for the recovery of certain damages when a physician’s employment is terminated. So long as the health care practitioner has worked for less than three years, an agreement under New Mexico law can provide for the recovery of relocation expenses, signing bonuses and training or education expenses. In addition, New Mexico allows for the recovery of liquidated damages, but forbids “fixing unreasonably large liquidated damages” which are deemed void “as a penalty”. Colorado took a similar approach. Colorado law allows for the enforcement of “all other provisions … enforceable at law, including provisions which require the payment of damages in an amount that is reasonably related to the injury suffered by reason of termination of the agreement.” To the extent, however, that any damage provision calls for damages not “reasonably related” to the termination of an agreement, those damages would not be recoverable.
As a practical matter, it has proved difficult to recover damages from a physician under the Colorado statute. In the leading case in Colorado, an anesthesiologist entered into a an employment agreement that called for the payment of liquidated damages if the anesthesiologist terminated his employment and continued to practice within a 25-mile radius. The liquidated damages to be paid were $10,000 for the loss of goodwill, forfeiture of the physician’s last three months salary and a payment of 50% of the physician’s future fees from his competing practice. As a practical matter, those damages, if recoverable, would discourage most physicians from opening a competing practice. The Court of Appeals ruled that the liquidated damages under the contract were so disproportionate to any actual damages that they were unenforceable penalty. Health care employers in New Mexico also may be unsuccessful in their efforts to recover damages from health care practitioners, particularly in light of the statutory language that forbids the unreasonably large liquidated damages.
These statutes are complex and difficult to apply. Physicians in Colorado, and health care practitioners in New Mexico, are well advised to seek counsel when they are faced with an agreement with noncompete provisions.