Non-Compete Violation (What is the PENALTY for Breach?)

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 completely 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 certain 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 you can. 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 want 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. 

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 lasts. 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?

Other Blogs of Interest

• Everything You Need to Know About Medical Employment Contracts
• Is a 2-Year Physician Non-Compete Too Long?
• Is 10 Miles a Reasonable Restriction in a Physician Non-Compete?

Should I Worry About a Non-Compete?

Should you worry about a non-compete? In short, it depends upon your specific situation. Suppose you have signed an employment agreement or, in many cases, an independent contractor agreement. In that case, most of the time, it will contain restrictive covenants. You can’t do those essential things during or after the contract ends. The most common restrictive covenants would be non-compete, non-solicit, non-disparagement, and some confidentiality. So, it would help if you looked closely at what they say. This could affect your professional career after the contract terminates. 

Non-Competes Are Enforceable in Most States

Let’s talk about non-compete. One of the, I’d say, biggest misconceptions I hear from professionals. It’s when they say, my friend, my colleague, told me non-competes aren’t enforceable anyway. So, why does it matter what it says? That’s not true. There are a few states where non-competes are completely unenforceable. You’re likely in a state where non-competes are enforceable. So, you need to take that into account. I would never suggest that someone sign a contract. I guess with the expectation that it won’t be enforced, so don’t have to worry about it. Well, okay. But you might have to go through litigation, or if there’s an arbitration clause in your contract. You may lose if you try to push it. You need to go into any employment agreement or independent contractor agreement. You’re going to sign, willing to follow the terms of the agreement. And that includes the non-compete. 

What Does a Non-Compete Do?

What does a non-compete do? A non-compete will stop you from working in a specific specialty for a specific time within a certain geographic radius or location. That depends on your profession. Most non-competes would be one to two years long, and the geographic restriction can vary wildly based upon the profession. Now, if you’re a healthcare provider, normally, it would be 10 to 15 miles from your primary practice location, maybe two locations if you’re working in an outpatient clinic. Then you do surgery in the hospital or something like that. It might be much broader if you’re in sales or an executive. It could be counties; or it could be a state. The ones that cover an entire state are much less likely to be enforced. That is more than those with a tighter geographic restriction. 

During Negotiations, Make the Non-Compete Specific

But here are some things you need to think about. First, as far as the specialty listed. This is very important. It will state that you cannot do X for whatever amount of time. And so, the X part is important. Let’s say you’re in sales and you do banking software. Well, you want it to say, you cannot provide sales in banking software for one year and three counties or something. If it just says sales, you have no alternatives for what’s in the geographic restriction. So, you want to tailor very narrowly. And the same thing goes for, let’s say, it’s a physician who does internal medicine. You don’t want it to say internal medicine. You want it to be specific to whatever you’re doing for that employer. 

If you’re an IM, you can be a hospitalist, do urgent care, do an emergency room, and do primary care. So, you have a bunch of different options. And you want it to be whatever you were specifically doing for that employer. That’s what it should say as far as the scope goes. 

Acceptable Length and Geographic Restrictions of the Non-Compete

As time goes, one to two years is standard. I would always lean more towards getting a client one year instead of two. But it’ll be somewhere between that. Sometimes I’ll see sales agreements that are like five years in length. No, you can’t accept more than two years. And then, as far as geographic restrictions go. As I said before, this varies among states. Maybe 20 miles in one state would be completely unreasonable in another. And then it also has taken into account the setting you’re in. Is it rural? Is it urban? 20 miles in New York City is much different than 20 miles in a rural town in Idaho. So, you need to think about whether you’re willing to accept and whether you’ll have to move. 

Many will accept a job or move to a location when I talk to clients. And they’ll say, no matter what happens after this agreement terminates, we’re leaving. So, the non-compete does not matter to me at all. In comparison, I’ll have another client that says, my family’s there. I grew up there. My kids go to school, and there’s no way I can move from the city we’re in after this contract ends. And in that scenario, the negotiation for the non-compete can be incredibly important. 

Many people don’t want a complete disruption in their lives for a year or two. They must travel far distances to do their work just because of the non-compete. So, should you worry about the non-compete? It would depend upon your situation. It depends on whether you plan to stay in the area or not after the contract terminates. But yes, it’ll likely be enforceable if it matters to you. It certainly can stop you and can be enforced in most states.

What Are Non-Compete Agreements?

Suppose you’re a healthcare professional about to take on a new job. You may wonder about non-compete agreements. What are they? Who needs them? What should you look out for when signing one?  

Non-competes may seem like overly severe restrictions to most people. You must 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. 

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. That would be 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-Competes

Non-compete 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. Ask for 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. That’s when you leave your position- which may happen 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. In those industries where employers want to protect their trade secrets or other confidential information.  

In medicine, a non-compete is common to prevent physicians from leaving their jobs and opening up a competing practice nearby. Non-compete can also 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 

The state law governs non-compete agreements. This means that the terms of a non-compete agreement 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
• Activities to restrain to have 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 Non-Compete

There should be a limit on the non-compete geographic scope based on where your employer does business. The radius can vary depending on the location where you work. For example, 15-50 miles could be reasonable if you practice in rural areas. While if you practice in urban areas, 2-15 miles can be considered appropriate.  

The Activities  

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 if your contract terminates and you need to get a new job. 
• If you leave your job, you will clearly understand 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. 
• You may be entitled to severance pay if you are laid off or fired.  

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 get stuck in a job you don’t like because you are afraid of breaching your contract.  
• If you breach your contract, you may get 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. 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. 

Conclusion 

Once 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, understand all these terms and conditions. This way, you can protect yourself and your future career. The first step is 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.

How Many Locations Should a Physician Non-Compete Apply To?

A physician’s non-compete should only apply to the physician’s primary practice location. The primary practice location is generally where the physician generates the majority of their charges. A non-competition clause for a physician is a legally binding clause. That prohibits the physician from working within a defined geographic area for a specific period.

One Location vs. Multiple Locations

Many employers will attempt to attach the geographic restriction to as many locations as possible (if the employer has multiple locations or the job requires work at other medical facilities). The physician should reject this. And attempt to limit the geographic restriction to two locations. Customary locations, the employer will attempt to attach the physician’s non-compete to include: 

• Primary Office
• Other Employer Offices
• Primary Facility (Hospital, ASC, etc.)
• Other Hospital owned facilities

Geographic Restriction Radius

The geographic restriction for any non-compete is determined “as the crow flies,” which is the most direct distance between two points (not driving distance).

Breaking an Agreement with Non-Competition Law

We consider Physicians with non-competition agreements in their contract as restraints of trade. And thus, the physicians were invalid on the grounds of public policy at common law. However, many restraints of trade incidents to contracts were upheld based on the rule of reason. Thus, restrictive covenants between dentists not to compete after the termination of employment. Generally enforceable as long as it is reasonable.

However, there are a few states which prohibit non-compete clauses. Please review your state laws for non-compete rules and regulations to see the specific rules for your state. The general test for reasonableness of these clauses holds that on termination of employment. A covenant that restrains an employee from competing with his former employer may be reasonable if:

• The restraint is not more than required to protect the employer,
• It does not inflict any untold hardships on the employer, and
• The restraint is not detrimental to the public.

Non-Competition for Employees

For instance, a non-competition clause with a business was considered unreasonable in Ohio. After judicial review, I noted that a provider’s sub-specialty was uncommon. It would be harsh if the hospital enforced the restrictive covenant. This is the hospital where it precluded him from practicing. It was only one of the few institutions in the area where he could practice his specialty.

Thus, in Ohio, covenants restraining providers from competing with their employer upon termination are considered unreasonable. Suppose it inflicts hardship on the doctor and is detrimental to the public. The demand for the doctor’s health care expertise is important for the community. And if the doctor’s services are important for the public’s health, care, and treatment. However, in general, non-competition clauses for doctors are enforceable. That is as long as they protect some of the employer’s legitimate interests. Having a non-compete review by a lawyer can assist in avoiding legal issues.

When a Practice Can Enforce

Many ask, are non-compete agreements enforceable from a business? The agreement is enforceable as long as a non-compete is well written. And it serves the employer’s interests but is not broader than necessary. Many myths have come about regarding non-compete agreements. It is better to be safe and sure about any agreement you sign as an employee.

Agreements that Are Too Restrictive

Some non-compete agreements are very restrictive. This can mean that the state will limit the enforceability of the agreement. If fully enforced, the employee may find it almost impossible to get work in the field after leaving that job. Non-compete agreements can stop a person from working in the same industry that he just left. This can mean that after years of education and learning skills, they can’t find a similar job with comparable pay in a specific geographic area. Without properly written and phrased non-competes, professionals won’t be able to find work freely. They won’t be able to change employers when they need to. A non-compete agreement has real-life consequences.

When Courts Won’t Enforce a Noncompetition Clause

Whenever a non-compete is signed, there has to be something of value given to the employee in exchange for signing the agreement. An exchange of value for a newly hired employee is typical that he is being hired for the job. There must be some other valuable consideration for hired employees, or they can’t enforce the non-compete. The courts also won’t enforce an agreement when it restricts the competition for too long a period. Usually, 12 months is considered normal. This could vary from business to business. The courts may not enforce non-compete agreements if it restricts someone from working in a large territory. The towns, counties, or cities are often listed, but if too wide an area. It would be unfair and, therefore, not enforceable.

Medical Employment Agreement Review

Contracts are a pervasive and obligatory part of nearly all company and legal transactions. Well-drafted contracts help to enumerate the responsibilities of the involved parties, divide liabilities, protect legal rights, and ensure future relationship statuses. These touchstones are even more crucial when applying for their roles. In such cases, the case of a provider employed by a hospital, medical group, or other health care provider. In comparison, contract drafting and negotiation can be long and arduous. Legal representation is necessary to ensure that your rights are protected.

The present-day conclusion is simple: A provider should not enter into any contract without having a physician contract review by legal counsel.

There is too much risk for providers to take contract matters into their own hands. In addition to the specific professional implications. Contract terms can significantly impact a provider’s family, lifestyle, and future. There are many important contract terms and clauses which can present complex and diverse issues for any provider, including:

• Non-compete clauses
• Damages
• Indemnification
• Verbal guarantees
• Insurance statements

Additionally, often the most influential terms and clauses in any employment contract are those that are not present. This is with the advent of productivity-based employment agreements. Before execution, any provider must have an employment agreement reviewed. Attorney Robert Chelle has practical experience drafting and reviewing provider contracts for nearly every specialty.

A thorough contract review can benefit:

• New residents
• Attending doctors
• Doctors entering their first employment contract
• Established doctors who are looking for new employment

The Benefits on Employing an Experienced Attorney

By employing an experienced attorney for your representation. You can ensure that you will be able to fully understand the extensive and complex wording included in your contract. You will be in a better position to decide by having a complete understanding of the contract. Decide whether or not you want to enter into the agreement, which will affect your long-term career life.

The financial benefits gained from having your contract reviewed and negotiated by an experienced healthcare attorney far outweigh the costs associated with a review. You are a valuable resource, and you should be treated and respected as such. Chelle Law will personally dedicate his time to ensure you are fully protected. Assist you in the contract process, and fairly represent your interests.

Every contract is unique. However, nearly all contracts for health care providers should contain several essential terms. Suppose these essential terms were not explicit in contracts. In that case, disputes can arise when there is a disagreement. A disagreement between the parties regarding the details of the specific term may occur. Suppose the provider expects to work  Monday through Thursday, and the employer expects the provider to work Monday through Friday. But the specific workdays are absent from the agreement; which prevails?

Physician Contract Checklist

Spelling out the details of your job is crucial to avoid contract conflicts during the term of your employment. Below is a checklist of essential terms that contracts should contain (and a brief explanation of each term):

During Employment

• Outside Activities: Are you permitted to pursue moonlighting or locum tenens opportunities? Do you need permission from the employer before you accept those practice medicine-related positions?
• Practice Call Schedule: How often are you on call (after-hours office call, hospital call (if applicable))?
• Practice Services Offered: What are the clinical patient care duties? Are you given time to review administrative tasks? How many patients are you expected to see (like in pediatrics)?
• Practice Assignment: Can the employer assign the agreement?

For the Compensations

• Base Compensation: What is the annual base salary? What is the pay period frequency? Does the base compensation increase over the term of the agreement? Is there an annual review or quarterly review of compensation?
• Productivity Compensation: If there is productivity compensation, how is it calculated (wRVU, net-collections, patient encounters, etc.)? Is there an annual review?
• Paid Time Off: How much time off does the job offer? What is the split between vacation, sick days, CME attendance, and holidays? Is there an HR guide?
• Continuing Medical Education (CME): What is the annual allowance for CME expenses, and how much time off is on the offer?
• Dues and Fees: Which financial expenses are covered (board licensing, DEA registration, privileging, AMA membership, Board review)?
• Relocation Assistance: Is relocation assistance offered? What are the repayment obligations if the agreement terminates before the expiration of the initial term?
• Signing Bonus: Is an employee signing bonus offered? When is it paid? Do you have to pay it back if you leave before completing the initial term? Are student loans paid back? Is there a forgiveness period for student loans?
• Professional Liability Insurance: What type of liability insurance (malpractice) does it offer? Is it a claims-made, occurrence, self-insurance?
• Tail insurance Insurance: If tail insurance is necessary. Who is responsible for paying for it when the agreement terminates?

Contract Termination

• Without-cause Termination: How much notice is required for either party to terminate the Agreement without-cause?
• Practice Post Termination Payment Obligations. Will you receive production bonuses after the agreement gets terminated?
• Non-Compete: How long does the non-compete last, and what is the prohibited geographic scope?
• Financial Retirement:  Is a financial retirement plan offered?
• Non-Solicitation: How long does it last, and does it cover employees, patients, and business associates?
• Notice: How is a notice given? Via hand delivery, email, US mail, etc.? Does it have to be provided to the employer’s attorney?
• Alternative Dispute Resolution: If there is a conflict regarding the contract, will mediation or arbitration process be utilized? What is the standard attorney review process for conflict? Who decides which attorney oversees the process?

Suppose you have questions about claims-made or occurrence coverage. Contact Chelle Law today if you have current malpractice insurance or are interested in having your employment agreement reviewed.