For years, non-compete clauses have been a standard fixture in Michigan physician and healthcare provider contracts. However, the legal ground in Lansing is shifting rapidly. As we enter 2026, Michigan House Bill 4040 (“HB 4040”) has moved to the forefront of the legislative agenda, threatening to fundamentally change how healthcare entities protect their patient bases and how individual providers navigate their careers.

If you are a physician, group practice owner, or healthcare executive, understanding the reach of this proposed legislation is critical for your 2026 strategic planning.

The Scope of the Proposed Ban

Introduced by State Representative Denise Mentzer, HB 4040 represents one of the most aggressive legislative efforts in the country to restrict non-compete agreements. Unlike some federal proposals that focused solely on “low-wage” workers, the Michigan bill is seeming far more expansive. It seeks to prohibit businesses from entering into, enforcing, or even representing the existence of a non-compete agreement with a “worker,” a term the bill defines to include not just employees, but also independent contractors, interns, and volunteers.

For the healthcare sector, where the line between an employee and a contractor can be thin, this broad definition is particularly significant. Under the current draft, nearly every traditional non-compete in a healthcare setting would be rendered void and unenforceable.

Retroactive Impact and Legal Risks

Perhaps the most jarring aspect of HB 4040 is its retroactive application. If passed in its current form, the law would not only ban future agreements but would effectively wipe out existing non-compete clauses already signed and in effect.

The bill also introduces significant teeth for enforcement. Workers who are “aggrieved” by a violation, including those who face a threatened enforcement of a void agreement, could bring a civil action to recover:

• Actual costs of the action, including reasonable attorney fees.

• All lost income resulting from the actual or threatened enforcement of the agreement.

Further, the bill prohibits mandatory arbitration for these disputes and bars “forum-selection” clauses that would force a Michigan provider to litigate their contract in another state.

Are There Any Exceptions?

While HB 4040 is a near-total ban, it does preserve narrow protections for legitimate business transitions. Non-competes may still be permissible if they are tied to the sale of a business or thesale of substantially all of a business’s operating assets. However, even then, the agreement must be reasonable in duration and geographic scope.

Further, for clinical practices concerned about “patient poaching,” the bill does allow for certain non-solicitation agreements. However, these are strictly limited to workers who earn more than 200% of the federal poverty line (roughly $51,640 for a family of three by current estimates). These non-solicitation agreements must also expire within one year of the worker’s departure.

What This Means for Your Practice Today

While HB 4040 is still navigating the legislative process in 2026, the trend toward worker mobility in Michigan is undeniable. Group practices should not wait for a final signature on the Governor’s desk to act. We recommend that healthcare employers begin auditing their current restrictive covenants now. Strengthening alternative protections, such as robust confidentiality agreements, trade secret policies, and intellectual property assignments, will be the primary way to protect a practice’s interests if traditional non-competes become a thing of the past.

For individual providers, this legislation may provide the leverage needed to renegotiate existing contracts or move into a new role without the fear of a costly legal battle over a radius restriction.

We will continue to monitor the progress of HB 4040 through the House and Senate committees. If you have questions about how this bill affects your current employment agreements or your practice’s long-term retention strategy, please feel free to contact us at 212-668-0200, or via email at info@mdrxlaw.com.