TL;DR — Key Takeaways

• California Business and Professions Code § 16600 voids almost all employee non-competes, including against physicians. The 2024 amendments made this even more explicit.
• Sale-of-business non-competes (BPC § 16601) remain enforceable when a practice is genuinely sold and the seller receives consideration for goodwill.
• SB 351 (effective January 1, 2026) added explicit voids on non-competes and non-disparagement clauses in private equity and hedge fund-backed MSAs.
• Confidentiality, trade secret protection, non-solicitation of employees, and certain customer-list protections may still be enforceable when narrowly drafted.
• California employers cannot enforce out-of-state non-competes against California-resident employees, even if the contract chooses another state’s law.

Are Non-Compete Agreements Enforceable for Physicians in California?

Generally no. California Business and Professions Code § 16600 voids any contract that restrains a person from engaging in a lawful profession, trade, or business. The rule is one of the strongest anti-non-compete positions in the country, and it applies to physicians the same way it applies to other professionals.

AB 1076 and SB 699 (both effective in 2024) reinforced and expanded § 16600. Employers can be liable for civil penalties for including or attempting to enforce void non-competes. Employers were required to notify current and former employees who had signed void non-competes.

The exceptions are narrow: sale of business (BPC § 16601), dissolution of partnership (§ 16602), and dissolution of an LLC (§ 16602.5). These exceptions exist when there’s a genuine asset sale and consideration paid for goodwill — not employment relationships.

What Did SB 351 Change About Non-Competes in Healthcare Employment?

SB 351 added an explicit statutory void on non-competes in PE-backed and hedge-fund-backed MSO arrangements with physician and dental practices.

On its face, this overlapped with § 16600 — California already voided most employee non-competes. The distinction is that SB 351 closes a perceived gap. Some PE-backed arrangements had structured non-competes through equity arrangements, MSO contracts, or sale-of-business mechanisms that arguably escaped § 16600. SB 351 makes those provisions void as well, regardless of how they’re labeled.

The exception SB 351 preserves is the genuine sale-of-business non-compete — meaning a real practice acquisition where the selling physician received consideration for goodwill, not an employment contract dressed up as a sale. The statute adds that sale-of-business non-competes “cannot function as employee non-competes,” which gives courts a tool to look past the label.

SB 351 also voids non-disparagement clauses in PE-backed arrangements that prevent providers from commenting publicly on quality of care, ethics, or revenue strategies.

Can a Practice Sale Include a Non-Compete Clause in California?

Yes, when the sale is real. BPC § 16601 allows a non-compete in connection with the sale of a business or its goodwill, restricting the seller from carrying on a similar business within a specified geographic area where the buyer operates. The non-compete must be reasonable in scope and duration, and the seller must have received genuine consideration for goodwill.

Common compliant structures include: (1) a practice acquisition where the selling physician retires or transitions to a different role, with a non-compete tied to the geographic area and patient base of the acquired practice; or (2) a partial sale where the selling physician sells equity in their practice and receives goodwill consideration, with a non-compete tied to the area where the buyer continues to operate.

Risky structures include sale-and-employment arrangements where the seller continues to work for the buyer with a non-compete that effectively functions as an employment non-compete. Courts and SB 351 both treat these skeptically. The question is whether the non-compete is genuinely tied to the goodwill transferred or is really restricting employment mobility.

How Do You Protect a Practice From a Departing Physician Without a Non-Compete?

Several mechanisms remain available even without an enforceable non-compete.

Trade secret protection. California’s Uniform Trade Secrets Act protects confidential information that derives independent value from not being generally known. Patient lists, business processes, and proprietary protocols can qualify if reasonable steps are taken to keep them secret.

Confidentiality clauses. Standard confidentiality provisions protecting practice operations, patient data, and business information remain enforceable. SB 351 expressly preserves confidentiality clauses for material nonpublic information.

Non-solicitation of employees. California has narrowed the enforceability of broad non-solicitation clauses, but narrowly tailored provisions protecting against active recruiting (rather than passive announcements of the departing physician’s new practice) may survive.

Patient notification protocols. Both the practice and the departing physician have obligations under Medical Board guidance regarding patient notification of physician departures. Following the protocols protects continuity and reduces the chance of accusations of patient abandonment.

Goodwill protection through sale structuring. When a physician shareholder leaves, structuring the buyout as a sale of goodwill and applying a § 16601 non-compete (where appropriate) can provide protection that an employment non-compete cannot.

Strong onboarding and team integration. Practical retention strategies often outperform legal restrictions. Patients are loyal to the relationship, not the entity. Building team-based care reduces exposure to any individual physician’s departure.

What Happens if a Non-Compete Was Signed Under a PE-Backed MSO Arrangement?

Under SB 351, the non-compete is void to the extent it falls within the statutory prohibition. The provider is not bound by it.

If the practice or MSO attempts to enforce the void clause — for example, by suing for breach of contract, threatening litigation, or interfering with a new employment relationship — the provider can raise the statute as a defense and may have affirmative claims of their own. SB 351 authorizes the Attorney General to seek injunctive relief and recover attorney’s fees against the entity attempting to enforce.

Existing employment agreements that include void non-competes do not automatically become valid as of the effective date. Providers and practices should treat the affected provisions as unenforceable from January 1, 2026 forward, even if they were signed before that date.

Practices that have not yet revised PE-backed agreements should do so promptly. Continuing to maintain void clauses in active contracts creates regulatory exposure even if the practice does not attempt to enforce them.

Out-of-State Non-Competes Don’t Save You

California courts will not enforce a non-compete against a California-resident employee even if the contract contains a choice-of-law provision pointing to another state. SB 699 (effective 2024) confirmed this and allowed California employees to seek declaratory relief and recover attorney’s fees if an employer attempts to enforce an out-of-state non-compete in California.

This matters for multi-state practices and PE platforms with operations outside California. A non-compete that’s standard in Texas or Florida is unenforceable here. The contract should reflect that, and operational protocols should not assume California physicians are bound by company-wide non-compete templates.

This article is for general information and is not legal advice. For guidance on your specific situation, contact Bay Legal, PC at 650-668-8000 to schedule a consultation.