Introduction to noncompetition and nonsolicitation agreements for dental professionals

Aug. 28, 2013
Lloyd M. Eisenberg, Esq., says overlooking issues governing the potential postemployment relationship in legal agreements can be a serious error. Here, he goes over the details of noncompetition and nonsolicitation agreements that pertain to dentists and other health-care practitioners.
Photo credit: Dentists and other health-care practitioners frequently execute an employment agreement in connection with entering into a new position. Prior to the commencement of the new employment relationship, negotiations understandably focus on issues relating to compensation and ongoing professional and administrative responsibilities. All too frequently, issues pertaining to the possible termination of the employment arrangement are not given as much consideration by the potential employee or employer negotiating over a new position.

Overlooking issues governing the potential postemployment relationship in legal agreements can be a serious error. Depending on which way the relevant contractual provisions cut, the employee’s future employment possibilities may be unfairly limited, or subject the employer to unfair competition from the future former employee. As in the case of any other contractual provision, such terms must be negotiated and the proper balance struck, and at least as much attention must be given with respect to such provisions as is given to those provisions governing the ongoing employment relationship.

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Specifically, employment agreements frequently include (and from the perspective of the employer, should include) noncompetition and nonsolicitation agreements applicable to the termination of the employment agreement, whether by expiration of the agreed term of employment or otherwise. Noncompetition agreements limit the geographical area in which a former employee may practice for a specified period of time. Nonsolicitation agreements likewise preclude a former employee from soliciting patients and employees of the former employer.

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The purpose of a noncompetition agreement is to prevent a former employee from unfairly competing with a former employer by utilizing his or her professional relationship with the former employer’s patients gained through employment, not to effectively prevent the former employee from obtaining a subsequent position. To that end, noncompetition agreements should be reasonable with respect to geographic scope and time. There is no hard and fast rule as to what is reasonable or appropriate with respect to those issues, due to substantial differences in population and practitioner densities across the country, in particular states, and even within relatively small geographic areas. Generally speaking, the practical issue to be addressed is not only the geographic area from which the employer draws patients, but also the geographic area from which competing practitioners may be expected to draw patients.

For example, if in a particular area dental practitioners generally draw patients from as far away as five miles, a noncompetition agreement precluding a former employee from practicing within five miles of the former employer’s office will not protect the former employer from unfair competition by the employee who joins a competitor’s office. That is because the catchment area of a competing office five miles away that also is believed to draw patients from a five-mile radius will overlap with a portion of geographic area from which the former employer draws patients. Patients within that area who were willing to travel as far as the former employer’s office may be more inclined to follow a former employee to a new office within roughly the same distance from their home. In this example, the noncompetition agreement arguably could fairly preclude a former employee from practicing within at least 10 miles of a former employer.

Of course, increasing the geographic scope of a noncompetition agreement at some point unfairly limits a former employee’s employment options without properly protecting the former employer from unfair competition. In extreme cases, such agreements can literally preclude a former employee from continuing to practice without relocating or being forced to endure an unreasonably long commute to a new employer. Such issues will be particularly acute in any state, such as the State of New York (the only state in which the author is admitted to practice), where the courts generally enforce noncompetition agreements with respect to medical professionals. (A discussion of the potential defenses to such enforcement in particular cases is beyond the scope of this article.)

Of increasing concern in recent years are multioffice practices, some of which have many offices, and which continue to add more. Such practices have been known to include noncompetition agreements in their employment agreements, which preclude a former employee from practicing within a particular radius of any office of the practice. Such a noncompetition agreement is particularly dangerous to an employee, particularly in a geographically confined area, which includes multiple offices of the employer, such as Long Island, New York.

Occasionally such noncompetition agreements preclude a former employee not only from practicing within a particular radius of any office of the practice existing as of the date that the employee commences employment, but also preclude the former employee from practicing within that same radius of any office of the employer existing as of the date that the employment arrangement terminates. Accordingly, in the case of an employer who continues to add offices, the employee cannot know at the commencement of the employment relationship the geographic area in which he or she will be precluded from practicing upon the termination of employment.

Noncompetition agreements that preclude a former employee from practicing within a radius of a former employer’s office in which the former employee did not practice generally do not have a legitimate basis. Such agreements do not limit unfair competition by a former employee with respect to any office in which the former employee did not practice, because the former employee generally will not have a professional relationship with any patient in any such office gained through his or her employment with the former employer that the former employee could improperly exploit. Such noncompetition agreements do not prevent unfair competition — they unfairly prevent legitimate competition and improperly preclude an employee from properly obtaining subsequent employment.

Overbroad and far-reaching noncompetition agreements frequently can be appropriately pared down through negotiation. In the event that a potential employer is unwilling to budge with respect to such issues, the potential employee would be well advised to consider looking elsewhere.

The appropriate temporal scope of a noncompetition agreement cannot be precisely defined. However, generally, the larger the geographic area covered by a noncompetition agreement, the shorter the time that the noncompetition agreement remains in effect.

The appropriate scope of a nonsolicitation agreement generally is less difficult to properly define. Nonsolicitation agreements generally prohibit a former employee from soliciting the patients and employees of the former employer. One important issue to bear in mind is the definition of “solicitation” set forth in the agreement. Specifically, it should be made clear that the term “solicitation” for purposes of the agreement shall not include advertisements offering dental services or seeking employees directed to the general public, even if patients and employees of the former employer might be expected to view those advertisements.

A common twist on the nonsolicitation provision is an agreement by the former employee not to hire employees of the former employer, at least for a period of years. Such provisions are reasonable. Agreements not to treat patients of a former employer, which come to the employee without direct solicitation, arguably are improper because a patient has the right to choose his or her provider. A potentially thorny issue is the right of a patient to be advised of the new location of his or her treating dentist, because patients generally have a right and expectation of continuity of care. (It must be emphasized that legal counsel should be consulted before a former employee provides any information to a patient concerning the employee’s new location of practice, particularly in the face of a nonsolicitation provision.)

The extent to which a practitioner brings his or her established patient base to an employer will affect the appropriate scope of a noncompetition and nonsolicitation agreement. In fact, it would make little sense for a practitioner with his or her own patient base to join an employer if there is any possibility that the practitioner would subsequently be barred from practicing in the area in which the practitioner built that following. Accordingly, with respect to such practitioners, noncompetition agreements generally are not appropriate and should be negotiated out of any employment (or partnership) agreement, or at least very severely curtailed. Likewise, such a practitioner should not be prohibited from soliciting the patients that he or she brought to an employer upon leaving that employer.

The foregoing is a general overview of the issues presented, and does not constitute legal advice. There are many subtleties that will apply to individual situations. In addition, the legal principles governing such issues may vary substantially from state to state. Experienced counsel should be consulted before entering into an employment agreement. Experienced counsel likewise should be consulted in the event of any postemployment difficulties arising out of a noncompetition or nonsolicitation agreement, or otherwise to determine appropriate options and remedies.

Lloyd M Eisenberg, Esq., is a member of the firm of Eisenberg & Carton, located in Port Jefferson, N.Y. Mr. Eisenberg’s practice includes representing medical practitioners and professional practices in connection with the negotiation of employment agreements, and litigation relating to the same. If you have any questions concerning this article, you are invited to email Mr. Eisenberg at [email protected]. Mr. Eisenberg is admitted to practice in the State of New York only.