Restrictive Covenants in California Physician Employment

Why California is different in kind, not degree

Most states apply a reasonableness test to a physician noncompete. A court asks whether the duration is reasonable, whether the geographic radius is reasonable, whether the employer has a protectable interest, and whether enforcement would harm the public. Because that inquiry is fact-bound, the answer is rarely knowable before litigation, and the practical effect is that a covenant deters departure whether or not it would ultimately be enforced.

California does not run that inquiry. Section 16600(a) provides that except as provided in the chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void. The operative word is void, and the operative structure is a rule with enumerated exceptions rather than a standard applied case by case.

The distinction matters to a physician reading a contract. Under a reasonableness regime the question is what a court would do with these particular facts. Under section 16600 the question is whether the clause falls inside one of the statutory exceptions. If it does not, the analysis ends, and it ends without regard to how modest the restraint appears.

That structural difference also changes who bears the uncertainty. Where enforceability turns on a multi-factor balancing test, the physician bears it, because only litigation resolves the question and litigation is expensive. Where a statute voids the clause outright and shifts fees to a prevailing employee, the drafting employer bears considerably more of it.

The Legislature closed the narrow-restraint argument explicitly

For years employers argued that a limited restraint — a small radius, a short term, a single service line — fell outside the statute because it did not truly restrain a profession. Section 16600(b)(1) forecloses that argument in terms. It states that the section shall be read broadly, in accordance with Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, to void the application of any noncompete agreement in an employment context, or any noncompete clause in an employment contract, no matter how narrowly tailored, that does not satisfy an exception in the chapter.

Two features of that sentence carry the weight. The first is no matter how narrowly tailored, which removes tailoring as a defence. The second is the express incorporation of Edwards, which means the statute adopts a judicial construction rather than leaving the breadth of section 16600 open to relitigation. A statute that names the case interpreting it is unusually closed to argument about its own scope.

What the 2024 amendments changed

Two statutes took effect on 1 January 2024 and altered the practical landscape more than the substantive rule. Section 16600 had voided these clauses for well over a century; what the amendments addressed was the gap between the rule and its observance.

Section 16600.5: geography and timing stop mattering

Section 16600.5(a) provides that any contract that is void under the chapter is unenforceable regardless of where and when the contract was signed. Section 16600.5(b) provides that an employer or former employer shall not attempt to enforce a contract that is void under the chapter regardless of whether the contract was signed and the employment was maintained outside of California.

This addresses a specific and formerly effective tactic. A national employer would have a physician sign in a state that enforces covenants, insert a choice-of-law clause selecting that state, and argue that California law was simply not the governing law. Subdivision (a) removes the timing and situs argument; subdivision (b) removes the ability to press enforcement at all.

Section 16600.5(c) further provides that an employer shall not enter into a contract with an employee or prospective employee that includes a provision void under the chapter, placing the prohibition at the point of contracting rather than only at the point of enforcement. Subdivision (d) provides that an employee, former employee or prospective employee may bring a private action for injunctive relief, actual damages, or both.

Section 16600.1: presenting the clause is itself unlawful

Section 16600.1(a) states that it is unlawful to include a noncompete clause in an employment contract, or to require an employee to enter a noncompete agreement, that does not satisfy an exception. Subdivision (b)(1) applies that prohibition to current employees and to former employees who were employed after 1 January 2022. Subdivision (c) provides that a violation of the section constitutes an act of unfair competition within the meaning of chapter 5 of the Business and Professions Code.

The unfair-competition characterisation is the substantive change. It converts what was previously an unenforceable clause — a nullity with no consequence for the drafter — into conduct with an independent statutory character. Before these amendments an employer faced essentially no downside in including a void covenant: at worst a court declined to enforce it, and in the meantime it deterred departures. That asymmetry is what the Legislature removed.

The February 2024 notice obligation

Section 16600.1(b)(2) required that, for employees and former employees within subdivision (b)(1) whose contracts included a void noncompete clause, the employer notify the affected person that the clause is void. The notice had to be individualised, in writing, delivered to the last known address and the email address of the employee or former employee, and delivered by 14 February 2024.

That deadline has passed. Its continuing relevance to a physician is evidentiary rather than prospective: if you signed a covenant with a California employer after 1 January 2022 and never received such a notice, that absence is a fact about the employer’s compliance with subdivision (b)(2), and it is worth preserving alongside the contract itself.

The exceptions, stated precisely

The exceptions are narrow, statutory, and concern the disposal of an ownership interest rather than the ordinary employment relationship. A physician evaluating a covenant should be able to identify which exception is being invoked; if none can be named, the clause is void under section 16600(a).

• Sale of a business or its goodwill. A person who sells the goodwill of a business, or an owner who sells substantially all of the operating assets or an ownership interest, may agree to refrain from carrying on a similar business within a specified geographic area in which the business has been carried on, so long as the buyer carries on a like business there. The premise is that the buyer paid for goodwill the seller could otherwise immediately reclaim.
• Dissolution of or dissociation from a partnership. Partners may agree, in anticipation of dissolution or of a partner leaving, that the departing partner will not carry on a similar business within a specified geographic area where the partnership business has been transacted.
• Dissolution of or termination of interest in a limited liability company. A parallel exception applies to members on dissolution or on termination of a member’s interest.

For a physician the practical test is ownership. An employed physician who never held an equity interest and sold nothing has no exception available. A physician selling a practice, or exiting a group in which they held an interest, may be within one — and the scope of any restraint is then measured against the specified geographic area in which that business was carried on, not against whatever radius the drafter preferred.

Where the sale exception is most often overstated

Two recurring overstatements are worth naming. The first arises where a physician receives a small equity interest shortly before an acquisition, and the restraint is then presented as a sale-of-goodwill covenant. Whether a nominal or recently granted interest engages the exception is a question about the substance of the transaction, not about the label attached to it.

The second arises where a group is acquired and every physician — owners and employees alike — is asked to sign the same restraint. The exception is available to those who actually sold an interest. It does not extend to employed physicians in the same transaction merely because the transaction occurred around them.

The 2026 overlay: covenants in the investor’s documents

Everything above concerns section 16600 and the instrument it addresses — in practice, the physician’s own employment agreement. Since 1 January 2026 a second prohibition operates on a different document, and diligence confined to employment templates will not find it.

Health and Safety Code section 1191(d)(1), added by SB 351 (Cabaldon), Chapter 409 of the Statutes of 2025, applies to any contract involving the management of a physician or dental practice doing business in California by a private equity group or hedge fund — or the sale of real estate or other assets owned by such a practice to one — or to any entity controlled directly or indirectly, in whole or in part, by such a group or fund. Such a contract shall not include any clause barring a provider in that practice from either of two things.

The first is competing with that practice in the event of a termination or resignation of that provider from the practice. The second is disparaging, opining, or commenting on that practice in any manner as to any issues involving quality of care, utilization of care, ethical or professional challenges in the practice of medicine or dentistry, or revenue-increasing strategies employed by the private equity group or hedge fund. Under section 1191(d)(2), any provision violating that paragraph is void, unenforceable, and against public policy.

Why it reaches further than section 16600

Three differences matter, and each of them concerns reach rather than strength.

The instrument. Section 16600 voids a contract by which anyone is restrained from engaging in a lawful profession, trade or business. The contract in issue is normally one the physician signed. Section 1191(d) reaches the management services agreement and the asset purchase agreement — instruments between entities, to which the individual physician is frequently not a party at all. A covenant restraining a physician can therefore sit in a document they have never been shown, and section 1191(d) voids it there.

The subject matter. The non-disparagement limb has no analogue in section 16600, which is concerned with restraints on practising rather than restraints on speaking. Section 1191(d)(1)(B) protects comment on quality of care, on utilization, on ethical and professional challenges, and specifically on the investor’s revenue-increasing strategies. It also protects opining and commenting, not merely reporting — so it does not require the physician to allege that anything unlawful has occurred.

The control chain. Subdivision (d)(1) reaches an entity controlled “directly or indirectly, in whole or in part” by a covered entity. In a platform structure the counterparty is usually a management company several tiers below the fund, and that language is drafted to follow it down.

What survives

Section 1191(d)(3) preserves two things. An otherwise enforceable sale-of-business noncompete agreement remains valid — with the express qualification that a contract described in the subdivision shall not operate as an employee noncompete agreement. That qualification addresses the common structure in which a selling physician also becomes an employee: the covenant may bind them as a seller and may not be used to bind them as an employee.

Also preserved is an otherwise valid provision prohibiting disclosure of material non-public information about the private equity group or hedge fund that is not generally available to the public — except to the extent the provision seeks to prohibit a disclosure of confidential information that is required by law, or a disclosure of the kind protected by the non-disparagement limb. A confidentiality clause cannot be repurposed to reach the speech subdivision (d)(1)(B) protects.

Its limits

Section 1191(d) binds only private equity groups and hedge funds as defined in section 1190, together with entities they control. A hospital system, a public agency, or a physician-owned group is outside it entirely — and for those employers section 16600 remains the operative and broader rule. Division 1.7 is the sharper instrument against a narrower class of owner; section 16600 is the general prohibition.

Enforcement is also narrower. Section 1191(e) entitles the Attorney General to injunctive relief, other equitable remedies and attorney’s fees; the division states no private right of action. That said, voidness under subdivision (d)(2) is a defence rather than a claim, and a physician sued on an offending covenant can raise it without anyone else acting. Section 1191(g) confirms that none of this lowers the corporate practice bar discussed on the corporate practice of medicine, and the deal-structure consequences are set out on private equity and the medical practice.

What remains enforceable

It is a common and expensive misreading to treat section 16600 as voiding every post-employment obligation. It does not, and a physician who acts on that misreading can create real exposure.

Trade secrets

Trade-secret protection arises under the Uniform Trade Secrets Act, not under contract, and section 16600 does not displace it. A former employer may pursue actual misappropriation of genuine trade secrets. What it may not do is use a trade-secret theory as a vehicle to obtain the practical effect of a void covenant — a proposition sometimes described as the rejection of an inevitable-disclosure doctrine in California.

For a physician the distinction usually resolves cleanly. Clinical skill, professional relationships, general knowledge of a specialty, and the identity of physicians in the community are not trade secrets. Compiled proprietary data, negotiated payer rate schedules, and confidential business methods may be.

Patient lists and solicitation

Nonsolicitation of patients is where employed physicians most often encounter real exposure, and where the analysis is most fact-specific. A clause that prevents a physician from treating a patient who independently chooses to follow them functions as a restraint on the practice of a profession and confronts section 16600 directly. A claim founded on the misuse of a confidential patient list — taking the list, or using contact data compiled by the employer — is a different claim resting on a different theory.

The practical safeguard is documentary. A physician who leaves without taking employer records, and whose former patients locate them independently, occupies a materially stronger position than one who departed with a list. There is also a patient-facing dimension that contract law does not resolve: continuity of care obligations and the professional duty to avoid abandonment do not disappear because an employer would prefer the patient stay.

Obligations during employment

Section 16600 addresses restraint on engaging in a profession, which in the employment context means after the relationship ends. Exclusivity during employment, moonlighting restrictions while employed, and duties of loyalty owed to a current employer are not what the section voids.

Notice periods, confidentiality and ordinary terms

A requirement to give a defined period of notice before resigning is a term of the employment relationship rather than a restraint on subsequent practice. It should not be conflated with a covenant — though a notice period long enough to function as a de facto restraint invites the argument that it is one in substance. Confidentiality obligations covering genuinely confidential business information likewise operate on their own footing.

Training repayment and stay-or-pay clauses

A newer mechanism deserves separate treatment because it achieves deterrence without using the word noncompete. Training repayment agreement provisions, sign-on bonus clawbacks and relocation-cost recovery clauses all operate by attaching a financial penalty to departure.

Section 16608, added by AB 692, restricts employment contracts that require a worker to pay the employer or a third party if the employment terminates, and applies to contracts entered into on or after 1 January 2026. A physician reviewing a contract signed on or after that date should read any repayment obligation against the section rather than assuming a clause framed as debt recovery sits outside California’s restraint rules.

For contracts predating that operative date the ordinary analysis applies: whether the provision is a genuine recovery of a quantifiable cost the employer actually incurred, or a penalty for leaving dressed as a repayment. The distinguishing features are usually whether the amount bears a real relationship to an identifiable expenditure, whether it amortises over time, and whether it is triggered by any departure or only by departure to a competitor. A clause that applies only when the physician goes to a competitor is a restraint on practice by another name.

Section 16608 and the 2026 boundary

Section 16608, added by AB 692, restricts contracts requiring a worker to pay the employer on termination and applies to contracts entered into on or after 1 January 2026. The date is the operative fact for most physicians: an agreement signed in December 2025 and an otherwise identical agreement signed in January 2026 are governed differently, and neither the parties nor the document will necessarily say so.

Two consequences follow for reading a covenant. Where an agreement predates the boundary, section 16608 is not the answer and the analysis runs on section 16600 and the training-repayment discussion above. And where an agreement is amended, extended or renewed after the boundary, whether that creates a contract entered into on or after the date is a question about the instrument rather than about the parties’ intentions.

Remedies, and what a dispute actually looks like

Understanding the remedial structure explains why these disputes now resolve differently than they once did.

• Private action. Section 16600.5(d) permits an employee, former employee or prospective employee to bring an action for injunctive relief, actual damages, or both.
• One-way fees. Section 16600.5(e) entitles a prevailing employee, former employee or prospective employee to reasonable attorney’s fees and costs. The statute does not provide the converse. An employer pressing a void covenant is exposed to the other side’s fees without a symmetrical recovery if it succeeds.
• Unfair competition exposure. Section 16600.1(c) makes a violation an act of unfair competition within chapter 5, which carries its own remedial framework.
• Declaratory relief. A physician who has been threatened but not sued may seek a declaration rather than waiting to be pursued.

The practical consequence is a shift in leverage. A demand letter asserting a covenant that satisfies no statutory exception is not merely unlikely to succeed; sending it may itself be conduct the statutes address. That does not make such letters rare — they remain common — but it changes what a physician receiving one should understand about the position of the sender.

How to read a covenant you have been handed

A structured reading answers five questions in order, and stops at the first one that resolves.

• Is this a post-employment restraint on practising medicine? If it restricts where, for whom or on what terms you may practise after leaving, section 16600(a) is engaged.
• Which statutory exception is being invoked? If the clause is not tied to the sale of a business or goodwill, to partnership dissolution or dissociation, or to termination of a limited liability company interest, no exception applies and narrow tailoring does not assist.
• Is there a choice-of-law or forum clause selecting another state? Section 16600.5(a) makes a void contract unenforceable regardless of where and when it was signed, and subdivision (b) prohibits attempted enforcement regardless of whether signature and employment were maintained outside California.
• Did you receive the section 16600.1(b)(2) notice? If you were employed after 1 January 2022 under a contract containing a void clause and received no individualised written notice by 14 February 2024, record that.
• What is actually enforceable in this document? Separate the void restraint from the confidentiality obligations, trade-secret duties, notice period and repayment provisions, which are governed by different rules.

The recurring error is treating the document as a single instrument that is either enforceable or not. Contracts of this kind ordinarily contain a void restraint alongside terms that bind perfectly well, and conflating them produces either unnecessary paralysis or unwarranted confidence.

What to negotiate instead

Because the restraint itself is void, negotiating its radius or duration is wasted effort and signals that the physician believes it binds. The terms worth negotiating are the ones that will actually govern: notice period and whether it is mutual, the definition of cause and the consequences that follow from each termination route, tail coverage for professional liability and who pays for it, access to and copies of records the physician is entitled to, the treatment of any repayment obligation, and how patient notification on departure will be handled.

That last item is frequently the most consequential and the least negotiated. An agreement about how patients will be told a physician has left — who sends the notice, what it says, and whether it includes the physician’s new contact details — prevents the dispute that most often follows a departure, and does so without either side relying on a clause that would not survive scrutiny.

What this page does not tell you

It does not tell you whether your covenant is void. That turns on the text of your agreement, your ownership history, the timing of signature, and facts this page cannot see. It is a description of the governing statutes, not advice about your situation, and a physician facing a threatened enforcement action needs counsel who can read the actual document.

Two further limits are worth stating. First, section 16600 governs contractual restraint; it does not govern hospital medical staff privileges, payer network participation, or a health system’s independent decisions about referral relationships, each of which operates under separate rules and can affect where a physician practises without any covenant at all. Second, this page states California law. A physician licensed in more than one state, or employed by a multi-state system, may face a covenant that is void as to California practice and live elsewhere — and section 16600.5 addresses California’s treatment of such an agreement, not another state’s.

Sources

1. Cal. Bus. & Prof. Code § 16600 — statutory text.
2. Cal. Bus. & Prof. Code § 16600.1 (AB 1076) — unlawful to include or require a void noncompete; unfair competition; written notice by 14 February 2024.
3. Cal. Bus. & Prof. Code § 16600.5 (SB 699) — unenforceable regardless of where and when signed; prohibition on attempted enforcement; private action; attorney’s fees for a prevailing employee.
4. Cal. Bus. & Prof. Code § 16608 (AB 692) — restrictions on contracts requiring payment on termination, for contracts entered into on or after 1 January 2026.
5. Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937 — expressly incorporated by section 16600(b)(1).
6. Cal. Bus. & Prof. Code §§ 17200 et seq. — unfair competition law, referenced by section 16600.1(c).
7. Cal. Civ. Code §§ 3426 et seq. — Uniform Trade Secrets Act.
8. Cal. Health & Safety Code Division 1.7, § 1191(d) — added by SB 351 (Cabaldon), Chapter 409, Statutes of 2025, chaptered text; approved and filed 6 October 2025, operative 1 January 2026. Competition and non-disparagement clauses void in management and asset-sale contracts with a private equity group or hedge fund at § 1191(d)(1)–(2); savings for sale-of-business covenants and material non-public information at § 1191(d)(3); covered-entity definitions at § 1190; Attorney General enforcement at § 1191(e); non-abrogation of the corporate practice bar at § 1191(g).

Related analysis

• The corporate practice of medicine doctrine in California
• Who controls clinical judgment
• Fee splitting and referral payment restrictions
• Hospital employment and staff independence
• Private equity and the practice