Conspiracy theory: Excluding competition from nearby veterinary clinics

Our office consults on a large number of veterinary employment contracts every year on behalf of both employers and associates. But during the past year or so, I have started to notice something unusual—a pattern in the use of certain contractual terms in certain geographical regions, which has caused me to take pause.

I'm certainly no conspiracy theorist and have no direct proof that anyone anywhere is intentionally doing anything they shouldn't be. Nonetheless, some of what has crossed my desk recently concerns me. It has brought back from the recesses of my memory images of past efforts—within isolated elements of the veterinary profession—to engage in restraint of trade.

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Everybody knows that there are federal and state legal prohibitions in place against such barriers to fair competition as price fixing and referral kick-backs. But is it possible that one could imagine a new twist on an old anticompetitive idea? Let's examine the way employment contracts could be used inappropriately by using a tool from law school, the hypothetical.

Imagine that in the rural southern community of Blackacre (law school hypotheticals always take place there), there is just enough of a client base to support five small animal veterinary clinics. Employment is stable in Blackacre, but the population isn't growing. Nonetheless, the owners of all five practices are doing pretty well.

None of the five practice owners wants to work all the time, so at some point they have all either hired or considered hiring an associate or two. Remarkably, whenever a new doctor is offered a job at any of the local practices, he or she finds one or both of the following things in the employer's proposed employment contract.

The draft agreements of each of the clinics in town contain noncompetetition terms, which describe a noncompete radius that would cover a distance beyond all of the other four hospitals in Blackacre. Others go even further and specify that if an employee does go to work within such a proscribed radius, he or she would agree to pay several thousand dollars in liquidated damages for the privilege of doing so. (Such contract terms are sometimes referred to as noncompete buyouts.)

At this point in our hypothetical, readers might say that: a) the noncompete distance is unreasonably far; b) most associates would not have the funds to pay such liquidated damages; and c) the associate would likely win in a court challenge as to the enforceability of such noncompete terms.

These are all arguable points. But look at the facts more deeply—what is to be made of the fact that all the clinics in Blackacre offer their associate candidates the same general terms?

Let's consider what might unfold in Blackacre if a young veterinarian who's new in town agrees to one of these coincidentally similar contracts. Assume, for example, that Dr. Jones signs up to work at Blackacre Valley Animal Hospital.

First, when the initial year of work draws to a close, Blackacre Valley has little incentive to be realistic in offering a raise. Jones' bargaining position is effectively neutralized by the reality that he would have to move in order to take a job at another practice; no other Blackacre clinics fall outside his noncompete distance.

Second, Jones can of course challenge the noncompete, but in doing so he will incur large legal expenses, which would not likely be covered under his AVMA insurance.

Third, even if Jones has a winning case, he almost certainly would not be welcome to work at any of the other practices in town—not as long as he is embroiled in noncompete litigation. No other practice in Blackacre would want to commit a potential tort (a civilly actionable wrong) by cooperating with a doctor already allegedly acting in breach.

Finally, and most importantly, the effect on Jones' career is that he has been effectively foreclosed from staying in the Blackacre area. After taking one job, he is pretty much out of luck finding another. So in addition to having an extraordinarily poor bargaining position for trying to obtain a raise, he also has been placed in a position where he has to either leave town or open his own practice far from the main population center of Blackacre.

Conspiracy? Collusion? Maybe just a random coincidence?

Regardless, the real-world effect of this handful of employment agreements is establishment of an anticompetitive environment in Blackacre. The similarity of the contract terms might be simply happenstance; surely assembling real proof to the contrary would be very difficult. But provable or not, conspiracy to exclude competition is illegal and, most would agree, immoral.

On a final note, while constructing and contemplating the anticompetitive nature of our hypothetical, I couldn't help but be reminded of this anecdote my father told a hundred times if he told it once: My dad, Dr. Robert Allen, graduated from Cornell in 1939—after the stock market crash, but before the economic renaissance of World War II. As we know, much about the regulation of the practice of veterinary medicine was a lot less formal in that era. Many state board exams were really more of an "interview" than an evaluation of the candidate's scientific knowledge or clinical ability. And a veterinary job—like every other job—was damn hard to come by. So Dr. Allen headed to one of New York's neighboring states after finally being offered a position working with large animals. Of course, he had to get a license before he could start work. After a long trip, he sat down to answer questions from a group of local practitioners who served on the state board.

"So, who you going to be working for up here, Bob?" the first examiner asked.

"Dr. So-and-so," replied my dad.

"Oh, he's a good man and needs the help," he replied.

"But eventually, you plan to head back home to Binghamton where your family is from, right, Bob?" another board member asked.

Dad assured the group that he planned to marry his college sweetheart and settle in their hometown, 45 minutes south of Cornell.

"Well, you seem qualified to practice in this state, Dr. Allen," the first examiner said. "You can start work for Doc right away and we will send your license right up to him."

The license came and my dad left—as he promised.

Dr. Christopher Allen is president of Associates in Veterinary Law PC, which provides legal and consulting services to veterinarians. Call (607) 754-1510 or e-mail info@veterinarylaw.com.