So, you are in search of a new job but left in the wake of former employment agreement nuances. It may be problematic to your search if you had signed a strict non-compete agreement, also known as a restrictive covenant. This type of document limits where you can practice next via geographic constraints and time limitations. This can make an already stressful situation—leaving an old job and searching for a new one—even more stressful!
This article assumes you are already under a contract with a non-compete clause, therefore the terms are non-negotiable at this point in time. (Check out our article on how to negotiate optometry contracts if you're at that point!) The enforceability of the restrictions, however, can be dubious. This article will hopefully give you a better understanding of the agreement terms and help you enter your new job conflict-free.
Non-Compete Agreement Basics
A non-compete clause prevents you from diverting business away from your former employer. Your former employer has ostensibly invested time, energy and resources to building up their business and if you are no longer employed by them, you are no longer able reap those benefits.
In addition to preventing you from supplying the same services within a given time frame and geographic location, the non-compete is often linked to a non-solicitation and non-disclosure clause. The former prevents you from encouraging coworkers, patients or business partners to leave your previous employer and either continue in your new place of employment or with a competitor. The latter prevents you from disclosing business or financial information to other parties once you are no longer working for the employer (Gardella).
In general, courts frown upon the notion of a non-compete statute; such an agreement can restrict trade and hinder economic expansion. In medicine, specifically, a non-compete can impede the public from readily accessing healthcare. It is for these reasons that the enforceability of the statute is dependent on how “reasonable” the terms are.
Whether or not terms are “reasonable” can vary within a state and geographic region and also among medical specialties. There are several key questions to be asked to decide if your non-compete agreement is “reasonable.” Those questions are as follows:
- Does it provide legitimate protection for the employer?
The restrictions must be a legitimate and genuine safeguard of the employer’s “protectable interests.” Evidence of the employer’s time and/or financial investment toward your professional development training need to be present. Any goodwill within the community to benefit your status must be substantiated as well (Harris).
This means that you must have worked at the business for a long enough time period to have benefitted from the provided resources and to have learned trade secrets (Kochman & Manduke). You must have also been in a position where access to said trade secrets, or relevant business information, was granted. Based on the aforementioned factors, there must be a recognized financial burden to the employer should the business lose patients, clients or business relationships due to your departure.
- Are the restrictions reasonable?
Historically, a time restriction of 1-2 years has been considered acceptable (Merritt). Distance restriction should be specified as a radius in miles along with the method of measurement. Most commonly utilized for measurement is “as the crow flies.” This terminology refers to distance in a straight path regardless of the drivable route. Whether the radius is acceptable is usually dependent on the population of the area and the saturation of professionals of the same specialty available.
If preventing you from practicing within the restricted area would hinder the general public’s access to healthcare, the court may not find such a geographic restriction feasible (Harris).
The smaller the geographic region and the shorter the length of time, the more likely the statute will hold up in court (Fensterman). Also, the more specific the terms are in defining the scope of work restricted, the more likely the statute will hold up in court.
- Will it cause undue hardship?
The restrictions cannot not be so broad as to cause “undue hardship.” In this case, undue hardship means that the restrictions would prevent you from earning substantial enough living for an extended period of time to support yourself and/or your family (Kochman & Manduke).
- Can the restrictions be modified?
Certain states have a “red pencil” policy, meaning that if one aspect of the agreement is unreasonable then the entire agreement is invalid. Other states will take a “blue pencil” approach and will revise the document to have acceptable terms; this is also referred to as “judicial modification” or “reformation” (Murphy).
Which states have found non-compete agreements illegal?
Only California, North Dakota, and Oklahoma have banned the use of non-compete agreements. Though Texas enforces non-compete agreements, the state is known have strict guidelines for upholding non-competes. It will not enforce a stand-alone non-compete, only if linked to an otherwise legal contract. All other US states have enforced non-compete agreements with “reasonable” restrictions (Beck, Reed, Riden).
What about crossing state lines?
Whether the non-compete restrictions are upheld across state lines is also up for interpretation depending on the state(s) involved. If the contract specifically requests that it should be interpreted under the law of the state in which it was signed, also known as a “choice-of-law” provision, it is more likely to be considered accordingly. If this is not specified, this is referred to as “conflict-of-law” and it is up to the court to decide under which state’s laws the doctrine will be interpreted (Bona Law).
The contract should specify the exact role or job you are prohibited from fulfilling during the restricted period. If it does not, and it attempts to prevent you from obtaining any type of employment, this can most likely be legally challenged.
If the new position can be considered “not competitive” in nature this may lend itself as an exception to the rule. Let's say you are leaving a practice to work in academia or a entering a non-clinical position: in this case, you may consider presenting the issue for discussion with your prior employer. If the employer agrees, you can obtain written permission to be excused from the non-compete agreement for that particular position. Of course, this is discretionary to the employer and the terms on which you leave the position and decided on a case-by-case basis.
Some states require a “buyout” option to be included within the contract. This gives you an option to pay a given sum and be released from the restrictive covenant. The sum is meant to mitigate the financial losses to the former employer of having you practicing nearby and providing the same or similar services (Merritt).
If you are terminated from the position without cause, it may be appropriate to request a release from the non-compete agreement. This is especially true if you are unable to find new employment outside the restricted region for a substantial period of time causing an “undue hardship.”
If you choose to terminate your employment for reasons related to inappropriate or illegal conduct by the employer, you will likely have a favorable ruling upon requesting an annulment of the non-compete agreement.
Before leaving your old position…
Once you have announced your intentions to leave the position, be cautious downloading or saving any business, patient, or client oriented information. This will avoid any accusations of attempting to steal trade secrets clients or business practices from the employer.
While some non-compete agreements require stringent compliance, others may not be as strict as you first interpreted. Speak to your human resource department and attorney to review the document and obtain a thorough understanding of your potential limitations. If you believe there are legal grounds to request release from the non-compete doctrine, seek legal guidance and do so before entering new employment.
If your former employer states that the non-compete restrictions will not be enforced, be sure to have that in writing and provide a copy for your attorney.
When starting at your new position…
Once you do find a new position, you should let the new employer know of the existing non-compete agreement terms. It may not seem relevant if the new position is outside the limitations, but in the interest of prospective relocations or assignments, it is best to be upfront about where you can and cannot practice.
What if you “break the rules?”
Breaking a non-compete and not being prepared for the consequences can result in significant legal fees and requirements to pay damages to the former employer. Even if the employer decides not to take legal action against your breaching of the contract without permission, it can destroy existing professional relationships and any chance of having a favorable reference from the former employer. On the same note, it can destroy your professional reputation and threaten future employment opportunities.
The best course of action is to have an attorney review the document to decide whether the requirements are reasonable for your area and specialty. If not, seek additional legal review to determine enforceability. If so, you may have to just stick with the restrictions in your new job search and move forward with your career!
- Gardella, Adriana. “The Limits of Non-Compete Agreements.” Forbes. July 25, 2015.
- Fensterman, Jordan. “A Beginner’s Guide to Physician Non-Compete Agreements.” MD Magazine. August 23,2013.
- Merritt, Martin. “What a Physician Should Know about Non-Compete Clauses.” Physicians Practice. http://www.physicianspractice.com/articles/what-physicians-should-know-about-non-compete-clauses. March 6,2016.
- Harris, Steven. “Physician Noncompete Clauses.” The Hospitalist. http://www.the-hospitalist.org/hospitalist/article/125197/physician-noncompete-clauses. July 7,2012.
- Kochman, Randi, Manduke, Lauren. “Just what the doctor ordered: Understanding restrictive covenants in medical practice.” Physician News Digest. https://physiciansnews.com/2014/02/10/just-what-the-doctor-ordered-understanding-restrictive-covenants-in-medical-practices/. September 26, 2017.
- Beck, Reed, Riden LLP. “Employee Noncompetes- A State by State Survey.” Fair Competition Law. http://faircompetitionlaw.com. 2017.
- Murphy, Hannesson. “How The 50 States Differ On Revising Non-Competes: Different Strokes for Different Folks (or Red, Blue, and Purple-Pencil America).” The National Law Review. January 2014.
- Bona Law, PC. “Is my out-of-state non-compete agreement enforceable in California.” Bona Law, PC. https://www.businessjustice.com/is-my-out-of-state-noncompete-agreement-enforceable-in-californi.html. 2017
The foregoing is provided for informational purposes only, is not an advertisement, does not constitute legal advice or legal opinion, and does not create an attorney-client relationship. The content may not apply to the specific facts or a particular matter. You should not act or rely on any information contained in this article without first seeking the advice of an attorney licensed to practice in your jurisdiction.
For more on employment contracts, check out our video from Vision Expo West!