Tuesday, March 18, 2014

Noncompete Clauses May Not Restrict You

Noncompete ClausesNoncompetition clauses don’t always accomplish what the employer intended. Usually the employer includes language in an employment agreement that says, “If you leave our company, you agree not to go to work with another employer (including yourself) in a way that directly competes with us.” But poorly written contracts— especially over-restrictive agreements—often fail to hold up in court.


Employers hoping to protect their substantial investment in hiring and supporting new physicians will do well to keep several rules of thumb in mind when adding noncompete language:
  • Avoid over-generalizing your definition of “direct competition.”
  • Make sure you identify a realistic geographical area from which the departing physician is prohibited to practice.
  • Specify a legally acceptable timeframe during which the departing physician may not practice in the identified market area.
First, make sure your contract language isn’t too vague. When a practice falls in love with a fine young recruit, it’s easy to move ahead with a feeling of “mutual understanding” not clearly spelled out in the legal documents. When the honeymoon’s over, both parties may pull out their signed contracts only to find the agreement provides more questions than answers.

When it comes to noncompetes, make sure you clearly delineate:
  • A specific time period—usually one year— during which the departing physician cannot compete; and
  • A clear definition of employment(self, group, contracted provider); 
  • Scope of services(specialty and/or discipline); 
  • Solicitation of current patients, employees or contracts; and 
  • An identifiable geographic area—usually stated in radius from current practice locations.
A smart lawyer can often find a loophole in the contract. Make sure your lawyer is experienced enough to close as many of them as possible. The second key for creating enforceable covenants is to ensure that your restrictions are reasonable. Sometimes employers attempt to prevent loopholes by imposing far-reaching provisions that create a lengthy restricted period or an exaggerated market area. Courts see this language as just so much bullying on the part of the employer. So keep things realistic.

Finally, many attorneys recommend including specific liquidated damages in the contract. The employer and employee agree that the employee will pay a (usually hefty) amount of money to the employer. Then the employer releases the employee from the restrictive covenants. If the dispute goes legal, the court will want to know how you came up with that amount, based on realistic economic damages suffered by the practice. Even then, it may impose a compromise that reduces the damage payment.

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