Enforceability of Employee Non-Compete for Dental Practices

Many dentists and dental practice owners across the county are familiar with non-compete agreements. Basically, a non-compete agreement is an employment-based restrictive covenant that prohibits a former employee from competing with a former employer in a specific geographic area for a specified period of time. Courts in general, however, have long held that these employment based restrictive covenants, including those that prohibit a former employee from contacting, soliciting, or servicing the dental practice’s patients, are disfavored as they are seen as restraints on trade.

Yet, the courts consistently have enforced these covenants, as long as the restrictive covenants protect a dental practice’s legitimate business interests, such as confidential information and trade secrets, patient relations, or business goodwill.  This assumes, however, that the restrictive covenants are not overly restrictive on the former employee’s post-employment activities. Thus, the enforceability of such covenants are evaluated in terms of the geographic scope, the activities that are restricted, and the length of time the restrictions apply.

Factors to Consider

In Ohio, as an example, most disputes over the enforcement of a restrictive covenant center on the reasonableness of that restrictive covenant to ensure it is not overly broad.  Of course, what’s reasonable depends a great deal on the actual employment context of the particular dental practice and the dental practice employee. Fortunately, the Ohio courts have defined a variety of factors that are used to scrutinize the reasonableness of a restrictive covenant. Some of these factors include:

• Whether the employer has set a limit on how long the restriction will last;

• Whether the employer has set a geographic limit on non-competition;

• Whether the agreement seeks to prevent the employee from using their inherent skills and experience, or whether the agreement seeks to enforce a temporary restriction on the employee bringing to the marketplace a new set of skills that they gained based on the employer’s investment and based on the employer’s confidential information;

• Whether the restrictions sought by the employer operate as a bar to the employee’s sole means of support; and

• Whether the benefit to the employer in gaining protection against unfair competition is disproportional to the detriment to the employee.

Application to Dental Practices

In looking at restrictive covenants in the context of a non-compete agreement, many dentists and dental practices erroneously believe that a two year non-compete with a ten mile radius is standard and therefore enforceable. But, that is not accurate.  Rather, the facts and circumstances of each particular case must be examined to determine: (i) the legitimate business interest being protected; and (ii) the scope of the restrictive covenants to ensure such scope is not overly broad. So, as an example, if a particular dental practice’s patient base is a two mile radius, yet the dentist is trying to enforce a non-compete of ten miles, it is very likely that a court would not uphold the ten mile radius if challenged. Further, if the employee only worked for a particular dental practice employer for one month, yet the dental practice is trying to force a two year non-compete on the employee, the courts will likely not enforce that non-compete, if challenged.

The concern that a dental practice employer should have with an overly broad restrictive covenant is the following: if the associate dentist, or other staff, challenge the restrictive covenant, the court may strike down the entire covenant, rather than limit it.  So, does it make sense to draft a restrictive covenant that protects the dental practice’s interests without being overly restrictive? Or, let’s ask it another way:

                        Why do pigs get fat and hogs get slaughtered?

This is precisely why a cookie-cutter approach to drafting and enforcing restrictive covenants often leads to unsatisfactory results or unwelcome surprises. Agreements that are far too broad will be rejected, and the dental practice may be left with no protection against unfair competition and/or debilitating solicitation of key patients. Moreover, even if an agreement is found to be enforceable, an agreement that is too narrow may not go far enough to protect the dental practice from the very harm the dental practice was seeking to prevent. In the end, a well-drafted agreement that is appropriately drawn to fit the particular dental practice’s legitimate interests and the employee’s work will provide the greatest likelihood of success, the greatest level of protection, and will avoid many of the unwelcome surprises that some have discovered along the way in the arena of restrictive covenants.

Conclusion and Upcoming Articles

In sum, dental practices should absolutely have restrictive covenants to protect their legitimate business interests.  Think about it for a moment: you as the dentist, work for 25 years to develop goodwill, and you bring on an associate dentist for two years, who believes that the value of the dental practice is based on their presence. We know that this is false, yet if that associate leaves, they may attempt to take some of the patient base and we cannot allow that to occur. So, take the time and incur the expense of hiring someone to properly draft the agreement.

We will be writing a group of articles as a follow-up to this article that will address the following restrictive covenants: (i) non-compete agreements; (ii) non-solicitation and confidentiality agreements; (iii) non-treatment provisions; and (iv) the reasonableness of each.