Non-compete clauses are also sometimes termed restrictive covenants, or covenants not to compete. For the employer, they are often considered one of the most important parts of an employment contract. Sometimes the restrictive covenant is a completely separate legal document. Non-competes have been around since the Middle Ages. The first known case involving a non-compete—Dyer’s Case—took place in 1414. Apparently, in that case, an apprentice named John Dyer had to refrain from his trade for six months in the town he had been trained in.
The extent to which non-compete clauses are legally allowed varies by jurisdiction. For example, the state of California invalidates non-compete clauses for all but equity stakeholders in the sale of businesses.
It is important to understand the laws in your state. (For more information see https://www.legalnature.com/guides/are-non-compete-agreements-enforceable-in-my-state.)
Intent of Non-Compete Clauses
The intent of the non-compete clause is to diminish the risk to a practice’s well-being upon an associate’s termination or resignation. By introducing an associate to the practice’s clients and encouraging the formation of strong client/doctor relationships, the practice owner is assuming a risk that his or her business will be harmed if the associate leaves employment. The associate might begin working for a competitor or start a business that competes with the previous employer. Those earlier introductions would allow the former employee to gain a competitive advantage by exploiting confidential information about their former employer’s operations. Or, they could use sensitive information such as customer/client lists, business practices and marketing plans.
Because of these potential issues, many non-compete covenants now include clauses specifically naming all these possibilities.
Types of Non-Compete Clauses
Non-compete clauses can take several forms. They might include a radius of distance from the practice’s physical address as well as a length of term. They also might specify that the departing doctor cannot perform services for any clients seen by the practice as of the departure date for a length of time. In this case, the contract defines the word “clients” specifically. It often includes any horse owner who receives services or purchases medications for a specified period prior to the associate’s departure.
Some employment agreements or restrictive covenants specify terms for a buy-out of the non-compete. Terms of a buy-out of the non-compete usually include payment of a percentage of the revenue earned by the departing employee in the previous 12 months, or payment of a percentage of future revenue earned from any of the practice’s clients that receive services from the departed doctor.
Take-Home Message
Often, the language of a non-compete seems draconian and harsh. Many associates hesitate and become fearful at this point. It is important to understand just what the agreement means in terms of future opportunities. Both parties must be comfortable with the restrictions. With so many associates having employed spouses, it might not be possible for a departing associate to find another equine position that is feasible with their spouse’s job location. This undoubtedly drives some of the attrition in equine practitioners that is currently so damaging to the profession. Negotiations to minimize or eliminate non-compete clauses might be necessary to keep doctors working in the equine field.
The most important factors to consider in a covenant not to compete include: Is it reasonable? Will it unduly restrict future employment? Will it stand up in court? Is it truly necessary if the practice culture is healthy, compensation and benefits are robust, opportunities for advancement and ownership are available, leadership is attentive, and management is responsive? Or, is it actually designed to restrict competition?
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