What Is a Noncompete Agreement in an Employment Contract?

Carolyn Buppert, NP, JD

Disclosures

June 12, 2006

Question

I recently encountered a noncompete agreement in an employment contract. I did not sign it. What is a noncompete clause, and what are the ramifications of not signing it?

Response From the Expert

 Carolyn Buppert, NP, JD 
Attorney, Private Practice, Annapolis, Maryland

 

It's not a bad idea to refuse to sign a noncompete agreement. However, it is possible that the employer may now refuse to hire you.

Employers often insert noncompetition clauses, also called "restrictive covenants," into nurse practitioners' (NP) employment contracts. This language is also commonly found in employment contracts for physicians, dentists, and veterinarians.

A restrictive covenant is a promise not to compete. Specifically, the language restricts an employee from practicing in the same specialty (or even the same industry) as the employer, within a set number of miles from an employer's business, for a set period of time after the employee leaves the employer's business. In most states, restrictive covenants are legal and enforceable, as long as they are reasonable. "Reasonable" means different things in different contexts. A judge will determine whether or not a clause is reasonable, if the matter goes to court. Even in states where restrictive covenants are not enforceable, employers don't want a prospective hire to have signed one, because the new employer wants no hassles, legal or personal, with a former employer.

By insisting that an NP agree up front not to accept any job within a specified number of miles of the current job, an employer is seeking to avoid a situation where a departing NP takes the practice's patients to the NP's next employer. However, NPs want and need the opportunity to take the best job offer available, and a noncompete agreement often precludes that. Furthermore, an employer who knows that an employee can't take another position in the area won't be as flexible in future negotiations as will the employer who understands that the employee can walk away and take a job with a competitor.

If an NP signs a noncompete agreement, leaves an employer, and joins the practice next door, in violation of the agreement, the former employer may decide to take the NP to court, seeking to enforce the contract, and ask the judge to issue an injunction prohibiting the NP from practicing. Before making a decision, a judge would analyze the past court decisions in the state, and then compare the facts of those cases with the current case, seeking to determine whether the noncompete clause was reasonable.

The judge would consider such facts as the size of the city or town where the practice is located, the severity of the geographic and time restrictions in the clause, the availability of other healthcare providers, and what the employment climate is like for healthcare providers. The judge would balance the needs of the employer against the harm to the employee. The judge would decide whether the geographic restriction and the time restriction were appropriate to accomplish the employer's needs, but no more. Finally, the judge would consider whether there is any potential injury to the public if a restrictive covenant is enforced.

When evaluating the terms of a restrictive covenant, an NP needs to consider the circumstances of the job offer, the severity of the restriction, the potential hardship imposed on the NP, the NP's future plans, and the availability of other practice opportunities.

By signing a restrictive covenant, an NP is giving up something of value -- opportunity. Generally, it is best to refuse to sign. However, an NP who refuses to sign a reasonable restrictive covenant may be seen by an employer as someone who is looking to start a competing practice nearby. The best advice on restrictive covenants is to ask that the clause be deleted. If the employer won't back down, negotiate language that you, the NP, can live with. And, insist that the employer give you something in return for the promise to forgo opportunities for future practice.

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