The Nevada legislature passed new legislation recently that essentially bans all non-compete clauses in physician contracts while severely limiting the instances in which a hospital or psychiatric hospital may employ a physician as an employee, rather than as a contractor. Assembly Bill 11 was introduced in February 2023 and had passed both the Senate and Assembly by May. However, Nevada Governor Joe Lombardo vetoed the bill in June, leaving AB 11’s future uncertain. The bill passed both legislative houses just shy of a veto-proof majority. If ultimately passed over the veto, AB 11 would make the following changes:
Physician Non-competes: Dead on Arrival?
Section 7.8 makes the largest change to existing law, prohibiting virtually all noncompetition covenants in physician contracts. The relevant text proscribes noncompetition covenants which “restrict a provider of health care employed by or contracted with a hospital in [Nevada] from providing medical services at another medical facility or office during or after the term of the employment or contract.” As indicated, section 7.8 most notably applies not only to covenants which restrict competition after the terms of employment, but those that restrict it during as well.
Such covenants will be deemed void and unenforceable, regardless of whether they satisfy Nevada’s requirements to enforce noncompetition covenants: (1) Must be supported by valuable consideration; (2) Must not impose any restraint that is greater than required for the protection of the employer; (3) Must not impose undue hardship on the employee; and (4) Imposes restrictions appropriate in relation to the valuable consideration.
Physician Employment: Contractors, not Employees
While it is a practice in Nevada that a physician works as a contractor rather than an employee of a hospital, AB 11 would codify this practice. Section 1 of the bill prohibits a hospital or psychiatric hospital from employing a physician as an employee “for the purpose of engaging in the practice of medicine, homeopathic medicine or osteopathic medicine.”
Existing law permits a county hospital or hospital district, a private nonprofit medical school, a nonprofit medical research institution or certain mental health facilities operated by divisions of the Department of Health and Human Services to employ physicians in certain circumstances. Section 1 additionally exempts hospitals or psychiatric hospitals participating in a graduate program approved by the Accreditation Council for Graduate Medical Education or its successor organization, or hospitals or psychiatric hospitals owned or operated by the State Government from its blanket prohibition.
Section 2 further clarifies that medical facilities “conducted by and for the adherents of any church or religious denomination for the purpose of providing care and treatment in accordance with the practices of the religion of the church or denomination,” or “operated and maintained by the United States Government or any agency thereof” are exempt from section 1’s blanket prohibition.
Limiting Physician Speech: Sharp Curtailments
Existing law already makes it unlawful for employers to discriminate against any employee for inquiring about, discussing or voluntarily disclosing his or her wages to another employee. Section 7.3 expands these protections by prohibiting hospitals or psychiatric hospitals from including in a physician contract provisions which prevent the physician from discussing: “(1) His or her wages or salary; (2) Any harassment, violence or retaliation he or she or any other person experience at the hospital; or (3) Any other information relating to the working conditions at the hospital.” This section also prohibits hospitals or psychiatric hospitals from taking any action to prevent a physician from discussing such topics or working for another medical facility or office.
Enforcement and Applicability: A (Brief) Reprieve for Employers
The provisions of sections 7.8 and 7.3 would be subject to administrative enforcement by the Labor Commissioner. However, section 9 states that sections 1, 7.8 and 7.3 “do not apply to any contract existing on the effective date of this act.” But sections 7.8 and 7.3 will apply to any such contract that is renewed after AB 11 is passed.
AB 11 in Relation to Other Legal Developments
Nevada’s potential enactment of AB 11 stands in contrast to recent legislative action out of Iowa. On June 1, Iowa Governor Kim Reynolds signed HB 357 into law, narrowing the scope of HB 2521. Enacted less than a year ago, HB 2521 prohibits healthcare employment agencies from “[r]estrict[ing] in any manner the employment opportunities of an agency worker by including a non-compete clause in any contract with an agency worker or health care entity.” HB 357 narrows the scope of this law by removing the non-compete restriction for direct care service providers (those who provide health care services to consumers through “person-to-person contact”).
We will continue to follow the developments on this front as state legislatures continue to propose legislation regarding restrictive covenants.