Restrictive covenants.

Abstract

Sales of medical practices and physician employment contracts may contain covenants not to compete, also known as restrictive covenants. These covenants prohibit sellers from competing with buyers and employees from competing with former employers for a specified period of time. As a result of a call for legislative action to dispel confusion created by case law regarding these covenants, there now exists a statute dealing with restrictive covenants. This new law abolishes the "common calling" test, a standard for determining the enforceability of covenants not to compete in employment agreements, which the Texas Supreme Court adopted in 1987. Among other remedies, the new law provides procedures for reforming a broad restrictive covenant to one that is reasonable. This article discusses the 1987 Texas Supreme Court case and reviews the new statute.