What Are Non-Compete Agreements? | Noncompete Agreements
If you are a healthcare professional about to take on a new job, you may be wondering about non-compete agreements. What are they? Who needs them? What should you look out for when signing one?
While non-competes may seem like overly severe restrictions to most people, you need to abide if your state enforces them. This then forces every worker to seek to understand non-compete agreements. Here is everything you need to know about non-compete agreements.
What Are Non-Compete Agreements?
A non-compete agreement is a contract between an employer and employee in which the employee agrees not to compete with the employer during or after employment within a particular geographic area for a specific period. Non-competes are usually signed when an employee first starts working for a company, but they can also be signed later on.
Noncompete agreements are also known as a covenant not to compete, restrictive covenants, or non competition clauses.
Before signing a non-compete agreement, it is important to review the clause thoroughly with the help of a physician contract lawyer. This is primarily because non-compete restrictions can have significant impacts on your career. For example, it can prevent you from getting a job in your field within a specific radius for years if you leave your position- which may happen due to unavoidable circumstances.
How Does a Non-Compete Agreement Work?
Noncompete agreements are most common in fields where there is a lot of competition, such as sales, marketing, and technology. They are also common in industries where employers want to protect their trade secrets or other confidential information.
In the field of medicine, a non-compete is often used to prevent physicians from leaving their jobs and opening up a competing practice nearby. Non compete can also be used to prevent:
- nurses from starting a competing home health care business
- pharmaceutical sales representatives from going to work for a competitor
- a veterinarian from opening up a competing animal hospital
- dentists from opening up a competing dental practice
- pediatricians from going to work for a competing pediatric practice
What Are the Legalities of Non-Compete Agreements
Non-compete agreements are governed by state law. This means that the terms of a non-compete agreement can vary depending on which state you practice. For example, some states require that non-competes be in writing, while others do not.
State laws require the employer to provide valid consideration, reasonable time frame, geographical scope, and activities to be restrained to have a legally binding agreement.
There are also states that don’t make a non-compete enforceable at all. For example, North Dakota, California, and Oklahoma.
What to Look Out For in a Non-Compete Agreement?
When you are reviewing a non-compete agreement, there are a few key things you should look out for:
The Time Period of the Non-Compete
The non compete length should be a reasonable amount of time, such as one to three years. The longer the time frame, the more likely it will affect you if you leave your job.
The Geographical Scope of the Noncompete
The non compete geographic scope should be limited to the areas where your employer does business. The radius can vary depending on the location where you work. For example, if you practice in rural areas, 15-50 miles could be reasonable. While if you practice in urban areas, 2-15 miles can be considered appropriate.
The activities that are restricted should be clearly defined. They should not be more than what’s needed to protect the employer.
Advantages of a Non-Compete Agreement to an Employee
There are some advantages to signing a non-compete agreement, such as:
- You may be able to negotiate a higher salary or other benefits, such as more vacation days. This is due to the consequences that follow if your contract is terminated and you need to get a new job.
- If you do leave your job, you will have a clear understanding of what you can and cannot do. This can prevent you from getting into legal trouble down the road.
- Your employer may be more willing to invest in your training because they know you are less likely to leave the company and use the acquired skills to compete with them.
- Non-compete agreements can give you a sense of job security and stability.
- If you are laid off or fired, you may be entitled to severance pay.
Disadvantages of a Non-Compete Agreement to an Employee
There are also some disadvantages to signing a non-compete agreement, such as:
- It can limit your ability to get another job in your field within a specific region if you are laid off or fired.
- You may be stuck in a job you don’t like because you are afraid of breaching your contract.
- If you do breach your contract, you may be sued by your employer. This can be expensive and time-consuming, even if you win the case.
Note that you don’t have to agree to the non-compete agreement as presented to you by your employer. You should evaluate which parts are critical to you and which parts you’re more flexible with. Next, aim to negotiate on how you and your employer can meet in the middle. Remember, you need a strategy and a reasonable one to do this successfully.
If you are asked to sign a non-compete agreement, it is crucial to make sure that the agreement is fair and reasonable. The reasonableness of a non-compete agreement depends on many factors, such as the duration of the agreement, the geographic scope, and the type of job you have.
Before signing a non-compete agreement, make sure you understand all these terms and conditions. This way, you can protect yourself and your future career. The first step to doing this is by consulting an experienced employment lawyer who can review and advise you on the agreement.
Chelle Law has helped many healthcare workers review and negotiate their non-compete agreements. He would be happy to help you understand your rights and options under the law.
What are the consequences of a non-compete? What are the basics of a non-compete and then how it can affect your career? In short, for any professional who signs an employment contract, I would say more likely than not, there’ll be non-compete in the employment agreement, assuming it’s in a state that doesn’t completely prohibit non-competes. There are a handful of states in the United States where non-competes are completely unenforceable but I’m going to talk about the states where they are enforceable. In this case, let’s say, you sign an employment contract, there’s a non-compete in the agreement. So, what are the basics of a non-compete? Well, a non-compete essentially says, you cannot work in a certain specialty for a certain amount of time within a certain geographic radius.
Let’s talk about that. Let’s take a physician for example. The non-compete would say, let’s just say it’s a cardiologist. It would say, you can’t work as a cardiologist for one year within 10 miles of your primary practice location. After the contract terminates, the cardiologist could not establish a practice or work for another company that has a location within a 10-mile radius. It’s 10 miles as the Crow flies, not street miles. I know some people will come to me and say, well, if you do the streets, it’s 10 miles, but no, it’s sticking a pin in a map, 10 miles in a big circle around that location. Now, things to think about if you’re going to sign a non-compete, and let’s just go for a sales professional for example. I find that non-competes for salespeople are much broader than for healthcare professionals for whatever reason.
So, you want to limit the non-compete as much as you can. Three things to think about, one, you want it very specific as far as the non-compete applies to what you’re doing for that company. And in sales, while this is important, let’s just say you’re selling software. And then the non-compete says you can’t work in sales for one year within the state or something like that. Well, most people could easily switch industries if they’re very good in sales. You don’t want to say you can’t do sales entirely. You would just want it to say, I can’t do software sales, or even more specifically, I can’t do banking software sales within whatever. Be very careful that the specialty is narrowly defined to what you are doing for that employer. Another consideration is whether the physician’s medical malpractice insurance requires them to purchase tail insurance and whether the contract benefits continue after the Agreement is terminated.
You don’t want as broad as possible. There are some physicians who can do multiple things. Let’s say, you’re an internal medicine physician. You could do primary care, you could be a hospitalist, you could do urgent care. If you’re with an employer and just working as a hospitalist, then you want to make certain that you could do either urgent care or primary care for that restrictive period. That way, you don’t have to move if you don’t want to. The next thing is the geographic radius. Now, this is specific to the profession. As I said before, healthcare professions are kind of narrow, sales are much larger, executives are much larger. But you want to narrow it as much as possible. An entire state would be, at least I would consider that very unreasonable.
You want to get it as tight to the location that you’re in as possible. Let’s say, you are in sales and you’re bouncing around an entire state. Well, try to get five miles from every customer that you’ve provided service to or to your largest accounts or I mean, there are many ways to do it, but you want to narrow that geographic radius to as small as possible. And then the last thing was how long it lasts. Anything over two years, I would consider very unreasonable, unlikely unenforceable. For healthcare providers, one year is the most normal amount for a non-compete. Some people push it to two, but for anyone, if you’re signing a non-compete that’s five years in length, or even 10 years or crazy amount, you absolutely want to get that down do at maximum two years.
Once again, for sales, I find the length of time can be very long. And even though some of these may not be enforceable, you never want to sign an agreement that has terms that you’re just saying, well, I’ll just sign it anyway, because it’s unenforceable. Well, that might be true, but you’re going to have to litigate it or go to arbitration and no one wants to do that. So, you need to do the work upfront before you sign the contract. Those are the consequences of a non-compete. You won’t be able to work in your specialty for a period within a certain geographic radius. And then, after the non-compete is over, you’re free to work anywhere that you’d like. I find when I’m doing employment contract review, this is easily probably top three, sometimes number one for a lot of people. If you are married to a location, your family is there, you have kids in school you grew up somewhere, you never want to move, the non-compete can easily be the most important thing for a professional.
For others, they’re like, I’m just here for the job, when this job ends, I’m moving on, and for others, it’s not important at all. You need to do an assessment of, alright, is this important to me or not? And then how much emphasis do I need to put on this when I’m doing the negotiation for the employment agreement?