A lawsuit between healthcare IT company Change Healthcare and a former executive over a non-compete agreement could radically change how healthcare employers can limit future business opportunities for their workers and lead to higher labor costs, lawyers say.
The dispute involves federal cases in Tennessee and Massachusetts courts. In April, Change Healthcare sued former chief executive Michael Feeney in Tennessee Court of Chancery, alleging that by joining competitor Olive AI, Feeney violated the terms of his contract that prohibited competition. The case went to state federal court.
Feeney, a Massachusetts resident, filed a separate Change Healthcare lawsuit in Massachusetts federal court in May, alleging that the company’s restrictive contract violated state law on non-compete agreements.
Massachusetts law requires companies to offer former employees pay for the duration of their non-compete agreement — a policy known as garden leave — or a “mutually agreed equivalent” such as additional stock options. Massachusetts has the most extensive gardening vacation requirements in the nation.
But Change Healthcare did not offer Feeney any of the benefits, even though he lived and worked in Massachusetts during his three years in office, the complaint alleges. Feeney asked a federal judge to declare the ban on competition unenforceable.
“Smart companies are rewriting their agreements to comply with the law,” said Mark Whitney, a Boston lawyer representing Feeney. “Change Healthcare did not take the opportunity to amend his agreement. They screwed up.”
Change Healthcare declined to comment on the upcoming lawsuit.
If a Tennessee judge decides Massachusetts law applies to the case, the complaint would set a legal precedent that would oblige any non-competitive employer that employs workers in Massachusetts to offer a garden vacation or similar benefit, said Russell Beck, a partner in Boston. . founded the law firm Beck Reed Riden, which helped develop the state’s non-compete law.
Because so much of Massachusetts’ talent pool is in healthcare and biotech, Beck said the provision could disproportionately impact those industries, especially companies that hire remote workers.
States have long sought to create anti-competition laws along the lines of Massachusetts.
The Uniform Law Commission, an impartial legal group that writes laws for states across the country to pass, modeled its 2021 non-competition law on the Massachusetts statute. The states recommended by the group require non-competitors to offer individuals a gardening vacation — payment of at least 50% of their base salary for the 12 months they are barred from working for competitors — or the agreed-upon equivalent.
In July 2021, President Joe Biden issued an executive order asking the Federal Trade Commission to “stop the unfair use of non-competition provisions” by specifically citing health care practices.
States have introduced at least 30 bills this year to end anticompetitiveness in healthcare, Beck said.
“The healthcare industry itself is definitely one of the activities of the states,” he said. “There is a real public policy issue: whether people in healthcare should be subject to a ban on competition.”
Massachusetts law prohibits doctors, psychologists, social workers, and nurses from being forced to sign a ban from competition. Its gardening leave law also states that the provision must apply to anyone who has lived or worked in the state for at least 30 days, even if their company is located elsewhere. But there hasn’t yet been a case that has tested the effect of the law on out-of-state companies, Beck said.
“Massachusetts law is so new,” Beck said. “Most anticompetitive lawsuits involve people who have been with the company for some time. Only about three and a half years have passed since the charter came into force. It will be a big problem.”
According to the Change Healthcare lawsuit, in November 2018, Feeney took a job as head of Change Healthcare’s high-tech services division, and two years later was promoted to vice president of operations transformation for physician revenue cycle management. As part of his employment contract and subsequent equity grants he received over the years, he agreed not to work for a competitor, disclose trade secrets, or solicit current or potential Change Healthcare clients for 12 months, the lawsuit alleges.
According to Change Healthcare’s complaint, as part of his employment contract, he also agreed to personal and exclusive jurisdiction under Tennessee law.
Accepting the role of senior vice president of sourcing market operations at Olive constitutes a breach of contract, Change Healthcare claims.
“The confidential information he had access to while working at Change Healthcare would give Olivia and Feeney a significant competitive advantage,” Change Healthcare’s lawsuit says. “It is inevitable that he will disclose confidential information about Olive’s Change Healthcare products, processes and services.”
Both Feeney and Olive are confident that he will be able to do his new job without violating Change Healthcare’s non-disclosure agreement, Feeney’s complaint says.
Olivia, who is not named as a defendant, did not respond to a request for an interview.
The dispute highlights why more companies have begun paying employees to not work or compete, said John Bauer, a partner at Lawson & Weitzen in Boston and an adjunct professor at Suffolk University Law School, where he teaches a course on business law. secret. .
“There’s definitely a reform effort going on in the states right now, and now the federal government is getting in on the action,” Bauer said. “In other states, gardening vacations may increase. Before this bill was passed, I almost never saw a holiday in the garden.”