Worried about veterinary competition? Don't be unreasonable

One of the hardest things to understand when studying law is the legal impact which has been assigned to what many would consider to be subjective and amorphous ideas. These are referred to by legislatures and judges as "legal standards."

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Consider, for example, when you are watching a news program or television show about a criminal defendant who is being tried for a felony. Conviction for a crime can only occur when a judge or jury is satisfied that the prosecution's proof demonstrates the guilt of the person charged "beyond a reasonable doubt." This is a legal "standard." However, exactly what this term means is anything but established and that standard probably varies ever so slightly in every criminal case.

But what we know for sure is that "beyond a reasonable doubt" is a lot harder to show and involves much more persuasive evidentiary material than the "civil standard" of proof (non-criminal matters where the winner gets money, property or other "stuff" upon demonstration of a successful case). I spend a lot of time sifting through judicial opinions and administrative hearing records issued by tribunals across the country which have decided cases involving veterinary law. The legal standard that appears in those opinions time and time again is the term "reasonable."

I would have to say that in my world, the area where the term "reasonable" comes up most frequently is in the drafting, amending, interpreting and negotiating of agreements among veterinarians "not to compete." As many readers may know from my previous columns, veterinary covenants not-to-compete generally fall into two main categories.

The first is the more common; where an employed doctor agrees that during and after his employment as an associate, he promises his employer not to undertake competitive veterinary practice within a certain area and for a certain time. The second type is the non-compete language which usually appears in veterinary hospital sale contracts whereby the former practice owner promises not to compete with the business he is selling.

Courts across the country frequently give wide latitude to business buyers and sellers as to what constitutes a "reasonable" distance and/or period during which the seller may agree to forbear from competing against the enterprise he is selling. This discretion is probably based on two general assumptions:

First, when a business (including a veterinary or other professional practice) is sold, the customer traffic of that business can be considered one of the most valuable business assets. It just makes sense that the person purchasing the so-called "goodwill" of a practice or business would be entitled not to have the seller immediately turn around and compete against him. This is especially true in that the purchaser paid substantial money for the right to provide services to the customers of the enterprise being acquired.

The second reason is simply that if a practice or other business is being purchased for a substantial sum of money, it is likely that the buyer and seller have both committed a great deal of thought to the transaction; they probably also have involved outside business, banking and legal professionals. Therefore, it's unlikely that either party to a business-purchase related non-compete would be more "sophisticated" or "savvy" than the other or have more access to professional guidance in the deal.

But as between an employer and employee entering into an employment contract, the circumstances on both these fronts is much different than in the buying of a business. This is especially true in the case of veterinary employment contracts, where there is frequently a cash-strapped young doctor on one side, negotiating with a seasoned practice owner on the other. There can exist in that negotiating relationship a significant disparity in both access to advice and experience in deal-making.

Additionally, it's a reality that agreeing to a non-compete zone is a major relinquishment of legal rights for an employed veterinarian compared to the veterinary practice promising what may amount to little more than a temporary job. It becomes clear why numerous states and judicial forums have imposed upon the veterinary "employment-based non-compete" their own interpretations of what constitutes "reasonable" non-compete language.

So how have various states approached the employment-based non-competition question? Florida's state legislature laid out its angle on the question in Title XXXIII, Chapter 542 of the Florida Statutes. That law makes a clear and unmistakable distinction between post-employment restrictive covenants and those which are part of the sale of "an equity interest...in a business or professional practice."

Selling a practice in Florida? The courts there were recently legislatively directed to presume that a seller's non-compete commitment is reasonable if it lasts three years or less. But post-employment non-competes? Much different. The same Florida law tells the courts in that state to presume any post-employment non-compete with a duration of more than two years to be unreasonable.

And the other states? They are—no pun intended—all over the map. California, except in very unusual circumstances, doesn't allow veterinary practices to impose non-competes on associates. An Illinois appeals court recently stated that, at least in the region covering Cook County, a post employment non-compete agreement generally can't even be enforced unless the employee in question has worked at the business for a minimum of two years.

Then you have many other states, including New York, which doesn't have a legislative directive specifically permitting or prohibiting enforcement of non-competition agreements associated with employment. Rather, there is a multi-factor "test" applied to the non-compete language, which permit courts to determine whether a specific clause is "reasonable," and as such, enforceable. Let's take a look at the test factors which states such as New York employ:

> Does the professional practice have a protectable interest?

> Is the prohibited area of competition realistic compared to the former employer's business region?

> Is the nature of the competition prohibited overly broad? For example, if Dr. A were practicing exclusively oncology in Brooklyn, would it be sensible to enforce a blanket prohibition against him related to general practice in Brooklyn? What about per-diem oncology carried out in the other four boroughs of New York City but with a business office address in Brooklyn?

> Does the period of prohibition on competition correlate realistically with the competitive risk posed by the former employee? How likely, for example, would it be that clients would be so dazzled by Dr. B's bedside manner that they would follow her to a competitor three years later? Two years? How about if she had only worked at the former employer's office for five months before resigning—does two years still make sense?

The law in the United States still does overwhelmingly support enforcement of competitive restriction on former employees as a general principle. The concept is firmly rooted in the same respect for protecting the fruits of hard work and entrepreneurial effort which led to patent, copyright and trademark legislation in past centuries and, more recently, to legislative protection of entertainment content and intellectual property.

But in determining what constitutes fair and reasonable protection for employers against former employees, the devil is still very much in the details of contractual language and venue.

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.