Non-Competes: What They're Not Telling You Before You Sign

Andrea (00:04):
Well, hi there. I am Andrea Watkins, and if you're listening to this while juggling three patient calls, checking in a couple patients, taking a payment, selling skincare, and trying to catch your doctor in between procedures, you might be working in an aesthetic practice.

Blake (00:18):
And I'm Blake Lucas, and this is PracticeLand. This is not your doctor's podcast.

Eva (00:26):
Evan's back for another episode about legal issues, and we're so glad to have all this free legal advice. Welcome back, Evan.

Evan (00:35):
Thank you for having me back again. It's really nice to be here. Before we get started though, I just got to say again that this conversation cannot constitute legal advice and does not create an attorney-client privilege.

Eva (00:48):
Why do you always have to be a lawyer?

Evan (00:50):
It's hard to take off your legal hat. Or my legal tie, I guess I should say.

Eva (00:55):
I will not trap you. I will not commit enterrapment here on this podcast. Our next big legal issue that we see a lot is non-competes. Very confusing for people. I remember many years ago I worked for someone who started a business in our space. She had a one-year non-compete from the company she had been working for. So she had to reinvent what she was doing completely from scratch. And so I sort of came along after that and watched her do that. And it was like a daily, almost daily question. Is this going to violate my non-compete? And I remember thinking, this is really annoying. Why are they preventing us from earning a living?

Evan (01:36):
Unfortunately, it's sort of in the name, right? An employer doesn't want you to compete with them. They don't want you to take away patients or steal any ideas. I would say that there's been a lot of movement at both the federal level and the state level over the past couple years on this issue. And people like your friend, I mean, there's certainly legislators and regulators who have heard their complaints. For employees, it can be very difficult. Some of them get employment agreements. They may not understand exactly what the ramifications are. So if you have the means, it always makes sense to have an attorney review it because I always see that that's an investment in your future.

Eva (02:19):
I'm not trying to take customers away from you when I say this, but I have lately been really finding a lot of help with AI, reviewing legal language to help me understand it better before I go to the attorney. And so I've been able to get a lot more information by putting agreements into ChatGPT or to Perplexity or whatever, and getting it to analyze it and tell me what's in it in non-legal language, which gets pretty close. And then I ask the attorney for help, which makes a lot more sense. It's saved me a lot of time, a lot of anguish too.

Evan (02:55):
It makes sense. I don't know if I can recommend the use of AI at this point, especially consumer facing products like ChatGPT, just because I've seen them make mistakes so many times, but you

Eva (03:08):
That's why we still send it to the real human.

Evan (03:10):
Right. Yeah. Look, it's up to you to protect your own interests. We do it on a daily basis. How many times do you click a terms and conditions thing with a new application that you don't even bother reading for something-

Eva (03:23):
Constantly.

Evan (03:24):
Yeah. So everybody does it. It's sort of the nature of the beast. But for something as important as an employer contract, which might impact the rest of your career potentially, right? You want to read it carefully, understand it. Restrictive covenants are probably the first place you should look, quite frankly, if you get an employer contract. Employers are getting more and more creative when it comes to these restrictive covenant issues. Again, there's been a lot of movement at both the federal level and the state level. From an employee standpoint, at the federal level, they've really sort of taken their foot off the gas. I think they went way too aggressive under the Biden administration, but there are many states who are taking action at the state level. California and Colorado come to mind immediately have a lot of protections. Colorado not only prohibits non-competes, they really also limit non-solicit provisions.

(04:21):
So that's probably a growing area we're going to see. I think some states have taken the opposite approach. Florida very recently passed legislation, which is much, much more employer friendly. So it's going to be up to state law. And again, this can sometimes come down to individual judges. These are complicated issues and it's often up to the specific language found in the agreement. So every agreement is going to be different. There are going to be different rules. When I talk about the creativity that employers are using, one thing that I have really started to see are broad confidentiality and trade secret protections. So even in a state like California or Colorado where non-competes are banned, the employer might have had you sign something that's saying that you won't take any information from the employer. So that could be patient lists. That could even be practice forms.

(05:13):
Those might be considered proprietary information in the practice. I'm also starting to see the use of what are called garden leave provisions. So this is something where the employer essentially pays you not to work. So one of the things about a non-compete provision is that there's-

Eva (05:34):
How do I get that job?

Evan (05:35):
Yeah. There's a tail for a non-compete provision.

Eva (05:39):
No, seriously.

Evan (05:39):
You can't work for any competitor within a year or two. A garden leave provision gets around the rules by continuing to pay you might be in the form of severance, but it'll pay you not to compete essentially for an ongoing period of time. So again, it's complicated. And if you're planning on starting your own business or working down the street for better pay, it's very important that you really understand what's in the contract you're signing.

Eva (06:10):
What would the normal components be of a non-compete that would not raise your eyebrows? What would make you say, this is totally standard and it's fine to sign this?

Evan (06:23):
So generally, the legal rules are that a non-compete has to be reasonable for both a time period and a geographic scope. So when we're talking about small providers, what we often see is, especially in urban areas, like five miles from the practice, you can't work with five miles from the practice or for a year or two after the employment ends. If you see something-

Eva (06:49):
Fun fact. Here's a very relevant, fun fact to that. A non-surgical patient will not travel more than 12 miles to a practice, and that's the extreme. If it's more than 12 miles away, they're like, "Forget it. "

Evan (07:06):
Interesting.

Eva (07:08):
Yeah, it is interesting. And we get that from marketing because we're trying to figure out where do we market to get someone to come to this practice. We don't want to spend our money outside of that 12 mile radius. And I recall discovering the same thing about, weirdly, orange theory. And if you look at orange theory, they won't put one within eight miles of each other. So it's almost the same thing. And this is very common in retail, especially multiple location retail organizations. So if it's five miles, I think you should feel safe with that. You don't need to make it bigger than that because most patients aren't going to go.They're not going to drive two hours to see you for Botox. It just doesn't happen.

Evan (07:56):
Yeah, very interesting. Sometimes what I can say is, I've seen this in my practice, sometimes a provider goes to work for a practice with the intent that they're going to join maybe their spouse's practice after the fact or their father's practice or something like that, and their father's practice or their spouse's practice or their friend's practice is within that zone, right? Maybe it's four miles away. So even though five miles will probably meet legal muster, whether the employer is adequately protected or the employee wants to challenge it, those are the kind of factors that I think need to play into decisions to move forward because even sometimes I've seen clients ignore those kind of issues.

Eva (08:48):
So if you're thinking someday I'm going to go work in this other place that's not open yet, or I'm going to open my own, but you're going to work here for now, just make sure that in that non-compete language, that you're negotiating that upfront.

Evan (09:04):
Absolutely.

Eva (09:05):
I think it's the human thing to do too, to say, "This is my plan and I'd love to work for you until then, not keep it a secret." I think the world is very small in aesthetics. Everyone thinks it's huge and that the opportunity is endless, but in reality, it's actually quite small and everyone knows everyone after a while. And so you don't want to burn bridges. And this is just sort of how I think about life in general is there's plenty of patients to go around and we should be helping each other. I know. I can see you're rolling your eyes at me already.

Evan (09:45):
No, I'm not rolling my eyes.

Eva (09:47):
You work in conflict land and I'm always trying to prevent and avoid it.

Evan (09:51):
Look, I think the best way to ... I work on compliance, right? I try and help my clients try and protect them. And oftentimes that's really great advice, right? You want to be upfront. You certainly don't want to be starting a relationship under false pretenses because that only increases the risk of conflict.

Eva (10:14):
Okay. So in a non-compete, it's normal to have a radius. A period of time, what's an acceptable amount of time?

Evan (10:23):
Usually it's a year or two. I think that's acceptable. Longer than that for an employee really raises my eyebrows. I've seen some as long as five years.That's a long time.

Eva (10:35):
That is a long time.

Evan (10:36):
Sometimes you will see sneakier kind of terms. So if it's a multi-site organization, they have offices all over a particular area. Sometimes they'll have non-competes that extend radiuses from all locations and even future locations, right? So that could potentially really impact them. That might meet legal muster. These are squishy kinds of terms, reasonableness. So it's very important that you keep your eye out for that. On the other side, some non-competes really limit exactly what competing activities might be. So for a med spa practice, it might really limit it to the aesthetic space. It might not prevent you from working for a primary care physician or a hospital or a dental office down the line. So it's so dependent on exactly what the language is, and that's why it's really important that you read it, you understand it. And if you don't think you have a good grasp on it, definitely talk to an attorney about it.

Eva (11:38):
A lot of people sign something when they get hired. And the reality is sometimes we're just so excited to get a job that we don't want to raise questions or be seen as difficult on the way in because of the way that it sets up the relationship with your new employer and your new teammates. So do you have any ideas about how you might approach that kind of situation?

Evan (12:01):
That's a great question. You're never going to get an answer to a question you don't ask, right? So better ask the question now than regret not asking it later. I've represented a number of employers and for healthcare providers, they tend to have a lot of leverage in these negotiations, especially for a nurse practitioner or a physician's assistant. They do have a lot of leverage. So you're in a position to ask for things, you're in a position to ask for clarity. Usually that provider needs the assistance and more often than not, they're willing to meet you halfway. So again, maybe you want to pick your battles, right? You want to focus on where you can win, because if you're asking a million questions, it's going to be harder to win on all of those, but you really got to be able to put your foot in the ground.

(12:55):
And something as important as a non-compete or compensation, right? I mean, that's usually the most important term. If it's not going to make financial sense for you to move forward and you want to negotiate on a term like compensation, ask the question because you definitely don't want to regret it later.

Eva (13:12):
If you're the person doing the hiring, you're the practice manager or you're the owner or you're the doctor and you're having this conversation about this agreement, you can actually build a lot of trust with this person who's coming into work for you by saying, "Here's how we wrote this non-compete agreement so that it protects both of us in case something happens down the line." And I think there is just a lot of value to having that, extending that as the employer so that the person really understands what's in there and not just dropping a big scary legal agreement, employment agreement on them. When you're the person with the power and the money, you have a responsibility to be kind and helpful to the person that you're asking to be on your team.

Evan (14:03):
I think that makes perfect sense, right? If you're not being open with your employee, you're just building distrust. And who's to say that employee is going to keep that information to themselves?

Eva (14:13):
That's a good point.

Evan (14:15):
Yeah. You want to keep ... One important aspect of running a business, especially running a medical practice, is having open lines of communication with your employees because if they're not satisfied, you're going to create turnover in the practice, which is going to impact patient care. If someone has an issue, they're more likely to file a complaint outside and file a complaint is a very formal, legalistic way to say it, but they're more likely to complain outside the doors than inside. You want to keep open lines of communication with your employees. Absolutely.

Eva (14:45):
They might go write scary, negative, anonymous reviews online and they might tell hundreds of people not to come see you. And I mean, there's all kinds of consequences that you may never see or be able to pin on somebody, but again, I think it's smarter to prevent that than try to mitigate it after the fact.

Evan (15:06):
Absolutely.

Eva (15:07):
One thing that comes up a lot, let's discuss a little bit the exit of a person, especially someone with a lot of patients. So a common scenario, one I've even seen myself is an injector. In fact, in a practice I know two injectors after many years of generating roughly a million dollars each a year, so top performers colluded on the side to leave at the same time, take all the patients with them and open their own practice down the road. And they did it like a surprise attack. It was really ugly. And I'm sure that they didn't have an easy time of it, but they had all of their patients' information by DM and Instagram, and I'm sure they were texting those patients. And so they probably didn't get all of them, but they certainly took enough with them to get started. And it was pretty painful for that doctor. I don't know if they had a non-compete or not, but what are your thoughts on that situation?

Evan (16:11):
Certainly this is a perfect example of why employers have non-competes, non-solicitation agreements, confidentiality agreements, non-defamation provisions. This is why employers go the whole nine yards to protect their practices.

Eva (16:27):
As an employer, you sort of have a choice then to let them either get away with it or do something about it. So can you play out the do something about it scenario? What happens next if you're that employer?

Evan (16:39):
So let's say they're bound by all of those provisions that I just said, right? Non-competes, non-solicitation, non-defamation, trade secret provisions. Usually the first thing an employer does is go to court and get what's called a preliminary injunction. These aren't necessarily the easiest things to get, but a preliminary injunction is a way for a court to press pause on a whole situation, maintain the status quo. And this is before any of the facts of the case are decided, right? A lawsuit can take two years before you get a decision, right? But a preliminary injunction can happen almost immediately within days or weeks. And under the preliminary injunction, depending on what the terms of the order say, the competitor, the former employee can't contact former patients, they can't contact former employees to try and staff. They can't rely on any of the information they took, those intake forms and whatnot.

(17:43):
So for the potential competitor, that can be seriously detrimental. You might have to wait two years for a court decision because you may win in the end, right? But if you're subject to that preliminary injunction and it's decided that everything that was said at the preliminary injunction hearing two years ago was wrong and you win and you have a right to compete, well, that's two years of time, money, energy, wasted. When I've seen employers do it, it's really the goal. I mean, it's to jam people up. That's why it's so careful to plan for these eventualities at the beginning. If you're an employer, make sure you have the protections in place. If you're an employee who's signing onto an agreement with restrictive covenants, understand what exactly those are, what are your plans in the future, and hopefully all of these situations get avoided.

Eva (18:34):
In this situation, it felt vengeful on the part of the two who left.

Evan (18:42):
So I think that's a great point. The word I always use with my clients that is the most important consideration when we're talking about enforcing non-competes is spite. Because this is not cheap stuff on both ends, and the employer takes the risk that they're going to lose. So it's really got to make sense for them to pursue a former employee. If the former employee takes everything, and I've seen this happen, where they take literally everything, they take the internal practice protocols, they take the intake forms, they take everything, and they set up a competing option down the street. Well, what do you want the employer to do? You're threatening their business, you've taken everything. It might make sense for the employer to pursue. And I don't know what the defense of the employees is going to be, especially if they sign non-competes. A lot of times it's murkier, right?

(19:39):
The employee may have a good reason for leaving, or it's a tangentially related practice that doesn't necessarily fall into the terms, but the former employer feels threatened. Sometimes like in California and Colorado, where it's even harder to enforce these restrictive covenants, right? Maybe lawsuits are less likely, but there still might be an impetus to do it if you've taken a patient list or something like that. So these are complicated situations. It's very rare that you see the clear cut example, but these are always the risks for both employers and employees.

Eva (20:16):
Yeah.

Blake (20:19):
Got a wild customer service story or a sticky patient situation? Send us a message or voicemail. If your tale makes it into our "She did what?" segment, we'll send a thank you gift you'll actually love. Promise, no cheap swag here.

Andrea (20:31):
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