What Are Non-Compete Agreements? | Noncompete Agreements
Suppose a healthcare professional is about to take on a new job. Then, one may wonder 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 must abide if your state enforces them. It 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 an employee. 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. Still, they can also be signed later on.
Non-compete agreements are 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. It 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. That is possible due to unavoidable circumstances.
How Does a Non-Compete Agreement Work?
Non-compete agreements are most common in fields with a lot of competition, such as sales, marketing, and technology. They are common in industries where employers want to protect their trade secrets or other confidential information.
In medicine, a non-compete prevents physicians from leaving their jobs and opening up a competing practice nearby. A non-compete can be an instrument 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
State law governs the non-compete agreements. It 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 from having a legally binding agreement.
Some states 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. It is due to the consequences that follow during contract termination, and you need to get a new job.
- If you leave your job, you will clearly understand what you can and cannot do. It 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.
- Suppose 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 obliged to stay in a job you don’t like because you are afraid of breaching your contract.
- Suppose you breach your contract. Your employer may sue you. It 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. It would help if you evaluated which parts are critical to you and which parts you’re more flexible with. Next, aim to negotiate how you and your employer can meet in the middle. Remember, you need a strategy and a reasonable one to do this successfully.
Suppose the employer asks you 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:
- The duration of the agreement
- Geographic scope
- Type of job you have
Before signing a non-compete agreement, understand all these terms and conditions. This way, you can protect yourself and your future career.
Consult a Good Lawyer
The first step is consulting an experienced employment lawyer. A lawyer can review and advise you on the agreement. Chelle Law has helped many healthcare workers review and negotiates their non-compete agreements. He would be happy to help you understand your rights and options under the law.
Other Blogs of Interest
- How Does a Company Know if You Violate a non-compete? | Can an Employer Breach a Contract
- What Makes a non-compete Unenforceable?
How Do You Avoid Signing a non-compete? | non-compete Signing
How can a professional avoid signing a non-compete? Suppose you’re looking into a new position, and the new employer has offered you either an independent contractor agreement or an employment agreement. In that case, it’s very likely if you are a healthcare professional, you’re in sales, that it’s going to include a non-compete. And a non-compete prohibits the professional from providing a specific service within a particular amount of time within a geographic area. Now, any negotiation it’s based purely upon leverage. So, if you are moving to a new job and they require a non-compete before signing the document, you have two options. One, move on to a new job that doesn’t offer a non-compete or negotiate the terms of the existing non-compete.
What If an Employer requires Non-Compete?
Now, just through decades of experience here, it is improbable that you can completely avoid signing a non-compete if required by an employer. The employer does this for some apparent reasons. Any employer’s biggest fear is bringing in a new employee or independent contractor. That person establishes relationships with either business-to-business sales contacts or they’re in healthcare. They build up a patient base, then decide to leave at some point. They take all the patients or business contacts and create a competitive business next door. No employer wants that to happen. And that’s why a non-compete is in place. Now, from the employee or independent contractor side, you don’t want to sign a non-compete that could stop you from participating in your profession.
Non-Compete in the Different States
A reasonable non-compete depends upon where your location in the United States. And then also, whether you’re in a rural or urban environment. There are a handful of states where non-competes are entirely unenforceable. So, you must first check and see if you’re in one of those states. However, most of you are likely in a state where a non-compete is enforceable. So, what does a court look to when considering whether a non-compete is enforceable? Well, it must be reasonable. It needs to be narrow in scope, meaning if you’re, and this also goes for the points you can negotiate with the employer. Let’s say you’re in sales, and the non-compete thinks you cannot work in sales in any industry. You want it to be specifically for what you’re doing for that employer, which will open other opportunities for the non-compete time limit.
Scenarios in Software Sales
So, if you’re making software sales, you want the contract to state you cannot participate in software sales within, let’s say, 10 miles and for one year. Now, in sales, the geographic restriction is much broader than if you are a provider for a doctor. 10 to 15 miles from your primary practice location may be considered reasonable. However, if you’re in sales, it might be a whole swath of counties in a state because providers of services, software, or whatever are not limited to the nearby area. Whereas if you’re a doctor, someone who lives five hours away is not going to come and see that doctor very often, most likely.
So, there must be an advance negotiation. All right, you need to look and see, is this job in a rural or urban environment? How long does it last? And then, is it specific to what I’m doing for them? If you cannot reduce those things to a reasonable degree, that’s better than signing something that could knock you out of your location. Some people who have ties to an area, who grew up in an area, have family, whose kids are in school, don’t want to move or at least travel for a year to work. So, this could be the most important thing. And so, you need to let the employer know that fact.
It would be best if you said to them, look, I have established ties to the community. There’s no chance I will move after this contract is terminated or ends, or the relationship sours. And therefore, this clause is the most important thing to me. And I will not sign the agreement unless amended. Then, the value you bring will determine the employer’s willingness to do that or not.
Suppose you’re just new to sales and out of training as a provider. Then, you don’t have as much leverage. Suppose you bring a ton of experience to an office or a business. In that case, you’re likely much more valuable and have more leverage in negotiating that.
What Are the Consequences of a Non-Compete?
What are the consequences of a non-compete? What are the basics of a non-compete, and how can it affect your career? In short, for any professional who signs an employment contract. More likely, there’ll be a 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 entirely unenforceable. Still, I will talk about the states where they are enforceable. In this case, let’s say you sign an employment contract, and there’s a non-compete in the agreement. So, what are the basics of a non-compete? A non-compete says you cannot work in a particular specialty within a specific geographic radius for a certain time.
Let’s talk about that. Let’s take a physician, for example. The non-compete would say, let’s say it’s a cardiologist. 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 for another company that has a location within a 10-mile radius. It’s 10 miles as the Crow flies, not street miles. Some people will come to me and say, 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’ll sign a non-compete, let’s go for a sales professional, for example. I find that non-competes for salespeople are much broader than healthcare professionals for whatever reason.
Negotiating Non-Compete With Your Employer
So, you want to limit the non-compete as much as possible—three things to think about. One, you want it very specific as the non-compete applies to what you’re doing for that company. And in sales, while this is important, let’s say you’re selling software. And then the non-compete says you can’t work in sales for one year within the state. Most people could easily switch industries if they’re very good at sales. You don’t want to say you can’t make sales entirely. You would like it to say. I can’t make software sales or banking software sales within whatever. Be careful that the specialty defines 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 to be as broad as possible. Some physicians can do multiple things. Let’s say you’re an internal medicine physician. You could do primary care, be a hospitalist, or do urgent care. Suppose you’re with an employer and just working as a hospitalist. In that case, you want to ensure that you can do urgent 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 narrow. Sales and 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.
Narrowing Geographic Radius
You want to get it as tight to the location that you’re in as possible. Let’s say you are in sales and bouncing around an entire state. Try to get five miles from every customer you’ve provided service to. Your largest accounts, or I mean, there are many ways to do it. Still, you want to narrow that geographic radius to as small as possible. And then the last thing was how long it lasted. Anything over two years, I would consider very unreasonable, unlikely, and unenforceable. For healthcare providers, one year is the most normal amount for a non-compete. Some people push it to two, but if you’re signing a non-compete, that’s five years in length. Even 10 years or a crazy amount, you want to get that down to a maximum of two years.
Non-Compete Is Important If You Live In The Area and Want To Stay There
Once again, I find the length of time can be very long for sales. And even though some of these may not be enforceable. You never want to sign an agreement with terms, then just saying, I’ll sign it anyway because it’s unenforceable. That might be true, but you’ll have to litigate it or go to arbitration, and no one wants to do that. So, you must do the work upfront before signing 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 you’d like. I find this is probably the top three when I’m doing an employment contract review. Sometimes number one for a lot of people. If you are married to a location, your family is there. You have kids in school, grew up somewhere, and never want to move. A non-compete can easily be the most important thing for a professional.
For others, they’re like, I’m just here for the job. I’m moving on when this job ends, and it’s not important to others. You need to assess whether this is important to me or not. And then, how much emphasis do I need to put on this when negotiating the employment agreement?
Does a Non-Compete Hold Up If You Resign? | Non-Compete Clause
Does a non-compete still hold up if the professional resigns from their position? If you have taken a job and they’ve likely had you sign an employment contract, in that employment contract, if you’re in healthcare or sales, it likely will have some non-compete clause. A non-compete is a restrictive covenant that stops you from doing something either during or after the contract termination. Suppose you have signed the employment agreement. It will also have language about how the contract terminates—four ways to terminate.
Four Ways to Terminate a Contract
One, the initial term ends, and there’s no renewal language, meaning you signed through your agreement. There’s nothing in there that automatically renews. Neither party wants to move beyond the three years. The contract ends, that’s it. Terminate a contract by mutual agreement. Any contract can be terminated by both sides, and wants to end it. So, that’s another way.
Another way would be with-cause, meaning one of the parties breached the contract. They’ve likely given some time to cure the agreement or the breach of the agreement, meaning it’s like a time to fix whatever the problem is. If they fail, the other party can terminate the agreement immediately. And then this is the important one, without-cause termination. That means either party can terminate the agreement.
At any time, for any reason, with a certain amount of notice to the other party.
Most contracts are between 30 to 90 days, depending on your industry. If you’re in sales, you will be on the low end. If you’re in healthcare and a physician, 60 to 90 is normal to assist with continuity of care issues. Once you resign, it means you have terminated the contract without-cause. So, as I stated before, you will have to provide written notice to your employer. You will have to work for whatever notice requirement period is in the contract unless both parties agree to something less than that. And there’s almost no scenario where if the employee terminates the contract without-cause that, the non-compete somehow invalidates. That would almost make a non-compete never enforceable because 9 out of 10 times, a contract is terminated by the employee giving without-cause notice.
Application of Non-Compete Clause
Suppose the professional is the one that decides to terminate the contract without-cause. In that case, the non-compete is still going to apply. The only scenario where there may be language that states not to use it would be if the employee terminates the contract with-cause. That means the employer has violated some part of the contract, is in breach of contract, and doesn’t cure the breach. And then the employee will then terminate the agreement immediately. And often, the non-compete will have language that if the employee terminates the contract with-cause, the non-compete will apply.
Now, ending a contract with the cause is not resigning. Resigning, how it’s generally accepted, would be giving without-cause termination notice. In short, if you do ultimately leave, the non-compete will likely still apply, and you will have to deal with the restrictions of that non-compete. The only scenario where the non-compete wouldn’t apply will be if you terminate the contract with a cause or sometimes if the employer terminates the contract without-cause. Meaning lays you off not because you do anything wrong. The non-compete won’t apply in that scenario.
What Should Be in an Employment Contract About Non-Compete?
Now, if there’s a non-compete offer that language is not there, you need to add it. So, add those two things. One that the non-compete should not apply if the professional terminates the contract with-cause or the employer terminates the contract without-cause. Those two things can protect the employee from having a non-compete apply to them in every scenario where an employment relationship would end.
Can a Non-compete Prevent You From Working? | Non-compete
Can a non-compete prevent you from working? What is a non-compete? A non-compete generally is a part of the employment contract that a professional signs before starting employment. A non-compete is considered a restrictive covenant. And that means it will prohibit the professional from doing something during or after the contract is terminated. As far as a non-compete goes, a normal non-compete will stop a professional from doing some specific work for a period within a specific geographic region. And I’ll give you an example. Let’s say you’re a cardiologist. The non-compete would say the physician can’t practice in cardiology for one year after the contract terminates within 15 miles of their primary office location. That would be a normal non-compete for a doctor. Now, in sales, it’s going to be a little broader.
When You’re Working on Sales, The Non-Compete is Broader
So, let’s say you’re in software sales. It may tell you can’t work in software sales for two years within the Southern half of Ohio, for example, something like that. Sales non-competes are much broader than those for healthcare workers. Whether it can prevent you from working, it can avoid whatever is listed as far as the scope is in the non-compete. So, for instance, as I said before if you’re a cardiologist, you may say you cannot practice medicine within this.
Now, for a cardiologist, you can usually only do one thing, but let’s take internal medicine. An internal medicine physician could do primary care or urgent care, they could do emergency department work, and they could be hospitalists. So, suppose you have a contract that states something broader than what you’re doing specifically for the employer. In that case, you want to get that narrowed down. Suppose someone was just a hospitalist for a hospital.
In that case, you want the contract to say you can’t practice as a hospitalist, not in internal medicine. And for sales, let’s take the software as an example. It should tell you that you can’t practice as a software salesperson within 10 miles in one year, whatever. It should not say you can’t work in sales at all. That would, I think, be completely unenforceable, most likely. Now, there are a handful of states where non-competes are entirely unenforceable, so you need to check and see if you’re in one of those states.
Reasonable Standard for Noncompete Agreements
You are likely in a state where it is enforceable. And so, what does the court look to when deciding whether to enforce a non-compete or not? Well, it’s a reasonable standard. Does it prevent the person from working completely or just in what they were doing for the employer? Is the time limit fair? Is that one year, which would be reasonable? Or is it five, which would not be? As I said, the physician is 10 to 15 miles from the primary practice location versus 150 miles.
There will be a sweet spot where a court will say, alright, that’s the right length with the proper geographic restriction and scope. And there may be times when one of those is way off. And suppose the professional wanted to fight it. In that case, the judge may not invalidate the non-compete agreement completely. Still, they may kick down whatever the unreasonable part is to an area where they would think it is reasonable.
Can an Employer Prevent You from Working?
Now, one thing to consider, this should only apply to what you’re doing for the employer. So, if you’re in sales for somebody, they can’t say you can’t work at all doing anything. Or, as I said before, if you’re a physician, you can’t know you can’t have any job within this area. Suppose it was something unrelated to what you were doing for that employer. In that case, that is not something the employer can or should be able to prohibit you from doing. So, it would help if you kept the scope as narrowly tailored as possible. Precisely what you’re doing for that employer, and keep the length as short as possible. Anywhere between one to two years is an average amount. Anything above that would be considered unreasonable.
And then, regarding the geographic restriction, this will depend upon what industry you’re in and its location. Ten miles in New York City could knock out thousands of opportunities, whereas 10 miles in a rural city in Idaho could knock out one opportunity. So, the agreement must take that into account as well. Where are you specifically located? And then, how many job opportunities will the geographic restriction stop you from moving forward? Non-competes are tricky.
They certainly can be one of the highest priority things to negotiate when you’re looking at signing an employment agreement. If someone has ties to a community, their kids are in school, their family there, and there’s no way they can move after the contract terminates. Non-compete agreement could be the absolute most crucial thing. If someone’s moved into a community specifically for a job, they may not care and say, well, I’ll move if this job doesn’t work out. Therefore their non-compete agreement doesn’t matter at all.
Advice from an Attorney
However, one word of advice, do not sign a non-compete, just expecting it not to be enforced. As I tell almost any client, you must be willing to go through whatever you ultimately sign. Even if we think it won’t be enforceable, you may have to litigate or go to arbitration to get there, which most people don’t want to do. So, make sure that you negotiate in advance. I just had a doctor last week come to me. And the employer said, well, we want you to sign this non-compete. Still, in the past, they’ve amended it after the relationship has ended. And I said, look, that’s just hollow talk. There’s nothing to hold them to that if you sign the non-compete agreement. You should not rely upon their word that they will change it after the fact. It just doesn’t make any sense to me.
How Much Does it Cost to Fight a non-compete? | Non-Competition
How much does it cost to fight a non-compete? It is a juicy topic with many moving parts, but let’s break it down. First, suppose you’ve signed a non-compete. In that case, it’s very likely you’ve signed an employment agreement or perhaps an independent contractor agreement, and a non-compete is considered a restrictive covenant. Restrictive covenants essentially prohibit the professional from doing something during or after the contract ends. So, you’ve signed this, and now you think this is not good for my career. The contract gets terminated, the non-compete kicks in, then you’re saying, alright, what do I do? Let’s break it down into what is considered an enforceable non-compete.
First, there are a handful of states where non-competes are completely unenforceable. That means even if you signed one, it’s not enforceable. I would ensure you’re in a state where non-competes are enforceable as an initial matter. Second, any state where non-competes are enforceable will only enforce it if it’s reasonable. A non-compete has three components. It’ll stop you from doing a specific thing, for a specific amount of time, in a certain geographic radius. Let’s take a doctor, for instance. Let’s say a doctor is a cardiologist. The non-compete would say you can’t work as a cardiologist for a year after the contract terminates within 15 miles of your primary practice location.
Doctor’s Non-Compete Agreements
So, a doctor signs a non-compete agreement that lasts three years and is a hundred miles from their primary practice location.
Well, likely, it wouldn’t be enforceable because that is a completely unreasonable amount of time, but you must think about your options. If you’ve signed a contract, you’d have to imagine the employer will attempt to enforce it. So, you need to look at the contract and see what avenues exist if there’s a dispute. One, do you have an arbitration clause in your contract? If you have an arbitration clause in your contract, you essentially give up your rights to litigate. And unless it specifically says anything involving non-compete goes to litigation. And in arbitration, a retired judge or attorney usually hears both sides of the argument and then renders a binding decision. The cost would be paying the arbitrator, which is usually about a day. And then, assuming you have an attorney, you’d have to pay your attorney’s fees.
And then perhaps if you lost, you’d have to pay the other side’s attorney’s fees, which could easily be thousands and thousands of dollars. Second, if you must litigate, the contract states that any disputes will be filed usually within the county, wherever your practicing is with whatever superior court is there. In that instance, let’s say you get sued. You’d have to hire an attorney; you’d have to pay them, and that’s done hourly. And then, if you lost, you’d have to pay the other party’s reasonable costs and attorney’s fees. And that could be tens of thousands of dollars, maybe even more. It’s unlikely that a non-compete dispute would end up in litigation.
Is Buying Out a Non-Compete Practical?
There would have to be so much money involved, or the non-compete agreement would have to be unreasonable. The professional would think it’s a slam dunk they will win to go after that. Some contracts have buyouts listed, and some states have a specific amount that they consider reasonable. And like for instance, in the healthcare profession, almost any contract with a buyout will state it’s the total compensation you received in the previous 12 months. So, for instance, if you’re, once again, a doctor, you make $250,000 a year, they’re saying you could buy out the non-compete for $250,000. I can tell you there’s almost no financial situation where that would make sense for a doctor to do that. They’ll never make that money at a new job, which would be a very long period.
And they’re not liquid enough to pay the $250,000 all at once. So, fighting a non-compete agreement can potentially cost thousands of dollars. You not only would have to pay your attorney’s fees, but if you lost, you’d also have to pay the other side’s attorney’s fees. And then potential damages for violating the non-compete agreement, so they lost profits from them. Recruitment costs to replace you, and you may have to pay a percentage of what you made in violation of the non-compete agreement. It’s tough.
Reach Out for a Lawyer
So, I would suggest if you have a contract with a non-compete that you’re interested in breaking or want an analysis of, alright, what’s the likelihood of being able to get out of this? Contact an attorney to go over what’s normal in the state. And then two, if the components of the non-compete agreement, your sign can be attacked in some legal way.
Physician Contract Questions?
Contract Review, Termination Issues and more!