Restrictive Covenant Considerations for the Associate Doctor

In today’s litigious environment, more and more doctors are deciding to protect themselves when it comes to bringing on an associate doctor. This protection, more often than not, is in the form of an employment agreement, which is executed by both

Aparties. For many associates, this agreement is viewed as little more than a hurdle between them and the ultimate start date. However, as these agreements become more common, it is important for any associate to give these documents the time and consideration they deserve. Although many aspects of the agreement are important, there is one that has far reaching ramifications for the associate doctor: the Restrictive Covenant.

Simply defined, a restrictive covenant is the associate’s promise to refrain from action, for some period of time, within some geographical location. They are generally made up of two promises:

First is the promise that the associate doctor will not compete against the host doctor during employment or after the employment is terminated. This is considered the “non-compete” agreement. The average non-compete prevents the

associate doctor from acting as an associate, independent contractor, owner, stockholder, or any other position allowing the associate to offer services to patients that would compete with the host doctor. Depending on the jurisdiction, some noncompete agreements may also contain

a “non-treat” provision. Although not enforceable in all jurisdictions, a non-treat prevents the associate from providing services to a prior patient of a practice, regardless of the location and whether the patient sought out the associate of their own free will. Non-treats are less common, but should be kept in mind when reviewing any non-compete.

ate doctor will not solicit the patients or staff of the host doctor. Much of the value of any dental practice is the patient base, and most host doctors will go to great lengths to ensure that the patient base is protected. When an associate doctor agrees to refrain from soliciting patients of the practice, they are agreeing to not contact the patients in any way, during employment or after the termina-

Second is the promise that the assocition of the employment agreement, for the purpose of having the patients visit another dental office or doctor. This can be as simple as a blast email to an associate’s former patients, letting them know where the associate is now working. Some non-solicitation agreements will contain specific language as to what is considered a breach of the agreement and what is not. For example, under one agreement, running a newspaper add announcing the associate’s joining with a local office may breach the non-solicitation, and under another, it may not. It is clear to see why it is important to understand your specific agreement prior to taking action.

agreement.

This applies to the associate attempting to

Staff, also being an important asset of a dental office, will be equally protected under a non-solicitation. Much like the restriction on soliciting patients, an associate promises to refrain from attempting to hire away employees of the host doctor.

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Because of this restraint on the actions of the associate, they must be “reasonable” and “enforceable” as a matter of law. The terms “reasonable” and “enforceable” are defined differently from location to location, but there are a few things to keep in mind when reviewing any restrictive covenant, the first being location. Depending on where the office is located, different sized restricted areas may be enforceable. For example, a five mile restrictive covenant may be overly broad and unenforceable for a practice located in a downtown metropolitan area. However, a twenty mile restrictive covenant may be enforceable in a very rural area. Courts often consider the number of other dental practices that the associate is restricted from by the covenant when determining its reasonableness and enforceability. Second factor to consider is the time period for which the associate

what an associate is able to do after

an employment

directly hire the employee or attempting to convince an employee to seek employment with any other doctor. Alliances are often formed with staff members during employment, however, more often than not it would be a breach of the associate’s covenant to attempt to take away staff members after termination for the restricted time period.

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will be under the covenant. These restrictive periods vary, but are not as greatly varied as the restrictive areas. Typically an associate can expect to have a restrictive period of twelve to twenty-four months. Going beyond twenty-four months in an associate agreement has not been viewed favorably by the courts or open negotiations. On the other hand, longer terms are regularly upheld for doctors selling their practices due to the benefit they receive. The courts are demonstrating there is a strong public policy that people be able to work. In order to protect that public policy, overly broad or lengthy restrictive covenants will not be upheld. In some states restrictive covenants are even unenforceable by law.

Having defined restrictive covenants and understanding that they are generally enforceable, prospective associates should know that the breach of a restrictive covenant can carry a heavy price. Most agreements will provide for a number of legal remedies for the Host doctor in the event of a breach. The most common remedies are injunctive relief and liquidated damages. In the event of a breach, a host doctor may ask the court for an injunction, which prevents the associate from working in the area that is in question, until the issue is resolved. Liquidated damages lay out a clear monetary cost for breaching, in some cases it is a total amount, for example $150,000.00, or it can be on a per patient or employee basis for the breach of a non-solicitation. Due to the heavy costs of breaching, and the loss of revenues in the event of an injunction, being proactive and planning around a restrictive covenant becomes necessary.

Be aware that most associates are going to face a restrictive covenant at some point in their professional career. Planning ahead for the restrictive covenant becomes a necessary step in order to prevent unnecessary restrictions on a future practice. As a general rule, associates should seek associateship opportunities outside of the area they ultimately want to practice long term or own a practice. For example, Dr. Smith recently received her license to practice dentistry and is seeking an associate position. Dr. Smith knows that she ultimately wants to

own her own practice in the small town in which she grew up. It would be unwise for Dr. Smith to seek an associateship opportunity in that small town, knowing that when she decides to pursue her own practice, she will be restricted from that area for a certain timeframe. It would be more appropriate for Dr. Smith to seek an opportunity ten to fifteen miles away from where she would like to establish her practice to avoid any future delays. Another way to plan for your restrictive

covenant is to aggressively negotiate the time and distance. Although not always successful, most doctors will reduce the size of the restricted area, or the duration of the restrictive period, in open negotiations. Being proactive during the negotiation phase of the associateship agreement can pay dividends in the long run.

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Restrictive covenants are often the price of doing business in dentistry. Associates should expect covenants and should be proactive regarding the negotiating and understanding of their covenants. It is important to realize that pre-planning can help one avoid the costs of a breach, and that there are constraints to be acknowledged. This will help any associate avoid unnecessary pitfalls in the important first few years of practice. ■

Joseph D. Jordan JD, is the President and

If you have any questions,

founder of Jordan Practice Advisors, Inc., a transition service that provides assistance with transitions in the dental community. Joseph D. Jordan JD, is an attorney who

comments, or responses to our

magazine, please connect with us

is focused in the dental field and provides assistance in a range of subjects, from contract reviews to helping place associates. His unique law experience and studies under veterans of the dental industry make him a perfect choice for the needs of the dental community. Mr. Jordan may be reached at (704) 827-5676 or by email: jjordan@legaldent.com. The company’s website is www. jordanpracticeadvisors.com.

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