Not all noncompete agreements are created equal

Since last month's article on noncompetition covenants, I've consulted with several other veterinarians who've taken jobs only to be faced with exactly the sort of cruel irony I discussed last month. The emails and telephone calls come from all sorts of doctors—from new graduates to double-boarded specialists—yet the story is so often the same. I'll frequently hear, "I signed a contract containing a non-compete and a salary (or percentage compensation arrangement) and now the practice's economic situation won't support my promised pay rate."

Any DVM who reads this column with any frequency knows that I bear no ill will toward non-competition clauses. While some judges and legislatures frown on these kinds of contracts for health professionals, there remain persuasive arguments for their use in many instances.

Christopher J. Allen DVM, JD

On the other hand, the principle of unintended consequences is alive and well in this area of the law. You don't need to field desperate phone calls from newly employed veterinarians to recognize why the concept of the non-compete is increasingly vilified.

But it's not the legal language or the players involved that has changed the employment relationship. What has changed—and dramatically so— is the economy. The Great Recession of 2008 has altered the employment dynamic in ways that are far from obvious for employers and associates alike. Let's look at how this chronically slow economy has made non-competition clauses more onerous than in the past.

Location, location, location

Consider that whether one is a new graduate or a board-certified specialist, the decision of where to work is a major life choice—and sometimes such a choice for more than one person in a household. It ordinarily means a lease or a mortgage, difficult decisions for spouses and partners as to whether to move or stay put, and potentially, an impact on partners' respective careers and educations. And usually attached to veterinarians' ankle is an almost-real ball and chain: the non-competition obligation preventing them from working nearby if their current job doesn't work out.

For many years, when the economy was stable and clients were plentiful, associates almost always stayed on at any job they took under contract, at least for the agreed contract period. If they left, it was due to a lack of "chemistry" with the employer or because both parties couldn't agree to a subsequent year's compensation level.

Now, though, a new factor is causing employed veterinarians to leave jobs—unexpected economic hardships their employers experience. As our economy continues to behave anemically and unemployment remains high, average transactions and client visits drop, and associates who have been recently hired find themselves at risk for losing their jobs due to a layoff. Further compounding this issue is that associates remain shackled by non-compete language.

Today more than ever, veterinary associates and their families are just getting past the economic hardship of moving to a new town when sudden unemployment hits. Savings are depleted and one or more children may be enrolled in a new school district when—BAM!—Mom or Dad gets laid off by their clinic employer and can't go to work anyplace else nearby because of their employment contract's non-compete.

Remember that in most cases, non-competition covenants continue to remain in effect long after the employment relationship has ended.

Recession-friendly non-competes

So what are the potential solutions to this dilemma? Certainly many employers would be unwilling to forego non-competes. Most would also be reluctant to guarantee employment for a full contract year regardless of the practice's ability to pay the associate. The answer, then, lies with the non-competition language itself.

It's important to keep in mind that non-compete covenants don't have to be "boilerplate" legal language. They can be customized to fit individual circumstances. Yes, it's true that most non-compete covenants simply forbid an employed veterinarian from practicing anywhere else within a certain specified distance of their employer's business for a set amount of time after employment ends. However, that simple formula can and probably should be changed to accommodate the employment realities of this ever-evolving veterinary market.

Let's look at some interesting ideas for tailoring a non-compete covenant to individual circumstances:

• New graduate contracts. In a lean economy, it's prudent to examine just how much of a competitive threat is actually posed by the recently minted associate coming to work at a first or second job out of vet school. For years, seasoned DVMs have complained that their new hires lack the confidence and experience they want in a new associate. Yet these fledgling practitioners are asked to sign blanket non-compete agreements covering multiple years and extended distances.

Does the competition risk posed by these new grads actually justify the severity of such a daunting non-compete? How much damage can an associate possibly cause to an employer if she works for somebody else across town after only one or two years with her original employer? Is the likelihood that clients will instantly "bond" with new graduates so great that it justifies asking them to risk having to default on student loans and break their home leases in the event that business tapers off at the workplace? Because that's what will happen if associates are laid off and kept from every other practice in town.

One solution is a graduated non-compete. During the first year, for example, an employer could write in, say, a five-mile non-compete that would apply if the associate quit. On the other hand, if the employment is terminated by the employer during that first year (other than for cause), the non-compete would only prevent taking a position within a radius of half of that distance.

This type of framework would provide reasonable protection for the workplace. What it wouldn't do is demand a tedious obligation on the part of the associate in a case where employment is lost through an action attributable to the employer, including an unexpected drop in caseload.

• Experienced associate and boarded-doctor contracts. The non-compete issue is more complicated with seasoned practitioners. When fashioning their non-compete covenants, ask these two crucial questions:

1. Should the associate be able to abandon a percentage-compensation arrangement in favor of a set minimum "base salary" in exchange for agreeing to a non-compete? When that option doesn't exist, the associate bears all the risk of a drop in the practice's client traffic.

2. If the caseload provided by the practice falls to such an extent that experienced and/or boarded veterinarians can't earn even a reasonable base salary, should they be contractually relieved (partially or fully) from their non-competition obligation?

In the case of boarded doctors, the non-compete distance in the employment contract may extend to a distance preventing them from taking any other job in their specialty throughout an entire metropolitan area.

To prevent such a specialist from having to move out of town to get work during an economic downturn, it might be preferable to include a provision in the employment contract to allow per-diem work at other facilities.

Another option would be to draft the non-compete to permit general veterinary relief practice outside of a fairly limited non-compete distance. This would permit the specialist to replace any income which the main employer may become incapable of supplying due to flagging demand for specialty services.

Dr. Allen is president of the Associates in Veterinary Law P.C., which provides legal and consulting services to veterinarians. Call (607) 754-1510 or visit info@veterinarylaw.com.

For a complete list of articles by Dr. Allen, visit dvm360.com/allen