What are non-compete agreements?
In the broadest sense, non-compete agreements prohibit an employee from accepting employment by a competitor of an employer for a certain time. They are treated differently than non-solicitation agreements and confidentiality agreements. While non-compete agreements may not solely prevent competition – the agreement cannot prohibit an employee from using general knowledge or skills – they prohibit unfair advantage in competition by the employee. For example, in a medical setting, among other things, a non-compete agreement can protect an employer from losing patients to departing physicians, the benefit of investment in specialized training for the employee, and confidential business information or patient lists.
How are they enforced?
The enforceability of a non-compete agreement is usually governed or enforced by state law. However, President Biden’s July 9, 2021, Executive Order may signal a shift toward more regulation at the federal level. Currently, what may be enforceable in one state may not be in another, and all non-compete agreements are generally unenforceable in California, Montana, North Dakota, and Oklahoma.
In states that permit non-compete agreements, enforcement depends on a variety of conditions, such as the business’s unique circumstances, how the employee fits into the company, and in what state the agreement was made. Courts evaluate multiple factors when determining whether or not a non-compete agreement will be found to be reasonable under the circumstance and enforced. Generally, the agreement must protect the employer’s competitive business interests and must be appropriate to the duration, geographic area, and type of employment.
Courts typically look at how the location impacts the provider where there is no prescribed limitation. A 50-mile non-compete agreement will be treated differently in a metropolitan versus a rural area.
What is reasonable?
Many states require that the non-compete agreement be reasonable regarding the type of employment or the line of business within which the agreement prohibits employment. Disputes sometimes arise when the restriction in the non-compete agreement applies to the practice of medicine vs. the practice of a specialty. A non-compete agreement cannot prohibit the employee from using general knowledge or skills. For example, if an orthopedic surgeon is prohibited from practicing orthopedic surgery, the surgeon would argue that the agreement essentially prevents the surgeon from practicing medicine altogether and should not be enforced.
While most states analyze healthcare non-compete agreements with the same standards as other non-compete agreements, some treat non-compete agreements differently depending on whether a physician or a non-physician signed the agreement. For example, Tennessee has a statute limiting non-compete agreements to be a maximum of 10 miles from the county of practice and a maximum duration of two years. In some states, physician non-competes are void, although most of those states have exceptions, such as when the non-compete accompanies the sale of a practice. Physician non-compete agreements are generally void in Colorado, Delaware, Massachusetts, New Hampshire, New Mexico, and South Dakota.
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About the Authors:
Christopher Ryan is Of Counsel and Health Care Litigation Task Force Co-Chair in Dickinson Wright’s Ann Arbor office. He can be reached at 734-623-1907 or email@example.com. His biography can be accessed here.