Non-Solicitation Agreements Versus Non-Competes: Which Is Better?

In last week’s blog (OD Buys Practice, Now The Seller Is Opening Across The Street), Dr. Joe Jones sold his practice to Dr. Bill Barry and signed a five-year ‘Non-Compete Agreement’.

What Is A Non-Compete Agreement, And How Do They Work?

There are two ways a Non-Compete Agreement (NCA) typically comes into play in private practice optometry.

Three Basic Components Of A NCA

The terms of Non-Compete Agreements vary, but most include these three basic components:

1. Distance — How far away the employee or seller has to move if he or she leaves the practice.  

2. Duration — How long the employee or seller has to stay away before he can see patients near the practice. In Dr. Jones’case, it was five years.  

Are Non-Competes Enforceable?

Enforceability depends on your state.For that reason, I strongly advise having an experienced attorney draft your NCA.

As a rule, the more narrow the terms of the NCA, the more enforceable it is.

For example, you’d have trouble defending a NCA that prevented an associate leaving your practice from seeing patients within 100 miles of your office for 10 years at a penalty of $500,000.

On the other hand, it should be easier to enforce an agreement prohibiting the associate from seeing patients within 1 mile of your office for 1 year at a penalty of $5,000.

Again, the specific terms will depend on what your attorney advises for your practice situation and on the laws of your state.

Why Bother With A NCA?

Even though enforceability varies from state to state and agreement to agreement, the mere presence of a NCA can serve as a deterrent to an associate or partner who wants to leave your practice and move across the street.

Is A Non-Solicitation Agreement Better?

An article in the May 2002 issue of Fortune magazine revealed that courts in many states now favor Non-Solicitation Agreements over Non-Compete Agreements.

NSAs do not prevent an ex-associate from opening up across the street, but it would prohibit him from contacting any of the patients he saw at your office.

The article stated that while a NSA is perhaps not as desirable as a NCA, Non-Solicitation Agreements are quite binding. Ask your attorney.

Three Traps To Avoid

1. Don't word the terms of a NCA so broadly that it’s unenforceable.

2. In many cases, an employer can’t retroactively force someone who is currently employed to sign a NCA. Nor can you fire an employee for not signing one.

For that reason, it’s important to have that new employee sign a NCA or NSA before he or she starts working for you.

It may also be possible to add a NCA if there is a significant change in employment status such as a promotion or making them a partner. 

3. If you are an associate OD considering a position with someone who wants you to sign a NCA or NSA, take it seriously. They do have bite.

I Look Forward To Hearing From You.

What is your experience with Non-Compete and Non-Solicitation Agreements?

Any words of advice for other ODs?

Have you had a Non-Compete Agreement enforced or broken?

Agree with this blog? Disagree? Have a comment or question of your own? Click here to send me an e-mail.

Disclaimer: The information and opinions contained on this site are for discussion purposes only and are NOT intended to serve as legal, accounting or investment advice. ©2009 Jerry Hayes, OD. Not to be reproduced without written permission of the author.

Here is an interesting

Diana Carriger, O.D. - 06/18/2009 - 15:59 pm

Here is an interesting anecdote about non-compete contracts.

My OD father-in-law sold his practice to a young optometrist in 1989. For accounting purposes, they divided the purchase price into two contracts. One was a non-compete agreement, and the other was for the equipment.

Unfortunately, Doc Sr. died unexpectedly shortly after selling the practice. The new OD then quit paying on the non-compete contract.

The seller's estate then sued the buyer and the court agreed that the non compete was valid and the buyer had to fulfill his contract.