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No Hire Clauses - Are They Legal?

Contracts involving health care professionals often contain a provision where one side agrees not to hire the other side's employees. For example, such a "no-hire" clause might appear in an agreement between a hospital and a physician group that staffs the hospital's emergency room, or between a hospital and a temporary nursing agency. In these situations, the no-hire clause usually prohibits the hospital from directly employing any of the emergency room physicians or any of the nurses during the term of the staffing agreement, and for a period of time after the termination of that agreement.

These no-hire clauses are different from traditional non-compete agreements. With a no-hire clause, the employee's future employment is not restricted by his or her own agreement, but by an agreement between two other parties.

In December 2002, the Wisconsin Supreme Court in Heyde Cos. v. Dove Healthcare, found a no-hire provision between a nursing home operator and a firm that provided it with physical therapists to be an illegal restraint of trade, and, therefore, unenforceable. Of particular concern to the court was that the therapists did not know of, or consent to, the provision, and that the provision prohibited the nursing home from hiring any of the staffing company's therapists, not just those that had worked at the nursing home.

Although most jurisdictions (including Maryland) have yet to consider the legality of no-hire clauses, some guidance can be found in Heyde, as well as in similar cases from other jurisdictions. A no-hire clause should not make the employee unreasonably unemployable, and should be reasonably necessary for the protection of the service organization. It should also be limited to a reasonable time, and should only restrict the employment of persons assigned to the party agreeing not to hire. In addition, most (although not all) jurisdictions that have considered this issue require that the employee affirmatively agree to be bound by the restriction, or at the least, have knowledge of the no-hire clause.

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Date

03.23.03

Type

Publications

Authors

Rosen, Barry F.

Teams

Health Care