Finding an O&P job in the current economic climate can be difficult. One bit of administrative business, the covenant not to compete, or non-compete clause, may make the decision to sign on the dotted line even more difficult. It should, because by signing that covenant, a new employee may be signing away his or her ability to find future employment.
On the other hand, an employer has the right to protect the business and any proprietary ideas that an employee may develop on the job. So the time to negotiate is before an offer is made.
Ron Scott
“In all the health disciplines for the last 50 years we have engaged in ‘covenant-not-to-compete-creep,’” said Ron Scott, PT, EdD, JD, MSBA, an associate professor at Rocky Mountain University of Health Sciences, Provo, Utah, and lead faculty, Healthcare Management Certificate Program, MedBridge Education, Seattle.
“We’re actually destroying the concept of employment at will. It’s become more and more onerous. I have students who tell me ‘I can’t get a job unless I sign a covenant not to compete,’” Scott said during a presentation at the American Academy of Orthotists and Prosthetists Annual Meeting and Scientific Symposium meeting in Orlando, Fla.
This clause is a promise to the employer not to directly compete or join a competitor’s practice for a specific length of time after leaving the current employer.
These covenants are fairly common, and the courts generally favor the employee in the event of arbitration. Two states, Colorado and Delaware, completely disallow them. Other states may insist that the clause is not enforceable if separate money considerations are not extended to an employee in exchange for their signature, while other states will enforce the covenant.
To avoid the trip to court, both employees and employers need to consider how this clause can be mutually beneficial before anyone signs it and an offer of employment is extended. Covenants should be reasonable in regard to what is prohibited over what scope of geographic distance and for how long; generally, a 1-year restriction is fairly standard.
Employee considerations
Scott said employees should protect themselves if asked to sign a non-compete clause. “You need to be careful and you have to tailor them to your own benefit if you’re an employee,” Scott said.
He used a hypothetical example of a non-compete clause that prohibited him from working in the southern half of the United States or anywhere within 500 yards of any branch of his current employer for a period of 5 years. He said he would first prefer not to sign it, but said he might consider signing it if it were modified to better benefit him — by severely reducing the geographic scope and length of time he could not pursue employment with a competitor.
“How long am I going to tie myself up? How long to be prohibited from practicing the profession that I’ve trained years and years for? Why are we signing these as employees? You should consult with an attorney and have it redacted or modified.”
Employer considerations
Covenants not to compete allow the employer to “have some assurance if the employee develops some proprietary uniqueness or differentiators to competitors in the market space, which the employer is paying the employee to do, that the employee will not take these to a competitor within a specified period of time or distance. This allows the employer to hire employees with certain unique skill sets like orthotics and prosthetics,” Brian Gustin, CPO, Forensic Prosthetic and Orthotic Consulting, Suamico, Wisc., told O&P Business News.
“Employees have to understand, the business owner assumes an awful lot of risk by a) being in business and b) hiring. I have to have some assurance what I pay someone to do for me — say, a new idea, program or process is secured — this is my differentiator in the marketplace. If you leave, I just lost this advantage … and I’m not so willing to pay you the salary you’re demanding if you are not willing to give me those types of protections,” Gustin said.
“The fact you are unwilling to agree to these protections sends the message you cannot be trusted and are not willing to help me grow my business. As the employee, you expect the employer to pay for certain developmental costs, such as annual [mandatory continuing education] MCEs. Why should the employer put effort into your development if you are not willing to help develop the business? The business owner has a fiduciary responsibility for the future incomes of all of the other employees and their families. One employee leaving and taking ideas or concepts, which make that business unique, can put all of those other incomes at risk. Not attempting to protect that would be irresponsible.”
Scott suggested a good non-compete clause should be minimally intrusive and reasonable. It might offer the employee monetary consideration or other benefits, such as health benefits or additional vacation time.
“But that’s not standard practice, and that’s why some of these things don’t hold up” in court, Gustin said.
Brian Gustin
Gustin added the agreement should include a detailed job description, if it specifies an employee is restricted in pursuing employment in the same capacity or job title. The agreement should be valued with some sort of consideration,which can be linked directly to this agreement.
“Could I work for someone within a 25-miles radius doing something different? As long as I hold what I know about employer number one to myself, and don’t reveal this to employer number two, am I in violation of that non-compete? The courts would probably say no.”
Employers would be well advised to keep the language simple, the time period covered by the covenant short and the geographic area small, according to a paper by David M. Wirtz, Esq., Grotta, Glassman & Hoffman, PA.
According to Wirtz, although judges dislike covenants, they will support an employer who can show the departing employee attempted to recruit other current employees or stole from the company; in other words, those who have breached their fiduciary duty to the employer.
Scott said a business owner doesn’t need a covenant not to compete to protect against an employee who takes patients lists or proprietary handouts; the owner is already protected against that.
“And they can’t solicit patients away from you anyway, that’s tortious interference with an existing patient relationship. That’s already the law; you don’t need a covenant not to compete for that. If patients just happen to follow [the departing employee] because they like that provider, that’s the nature of competitive business and free enterprise,” Scott said.
Be your own advocate
If a potential employee refuses to sign on the dotted line, or leaves the company at will, that may create a cost-saving alternative, Gustin said.
“Maybe I can put in some technology so I can hire somebody at a lower cost and lower skill level to do the same thing. If you force my hand, and leave me exposed as a business by not agreeing to these covenants, then maybe I will. And so the employee or employee marketplace…[may] force the business owner to say ‘how else can I do this with lesser skilled people and accomplish the same thing?’” In effect, this may spur more innovation from the employer, and limit opportunities for more highly skilled or educated employees who won’t sign.
Gustin said sometimes at termination, employers will pay severance and try to tie this to the non-compete clause. But severance and consideration for signing a non-compete are two different events.
Scott said he would sign it but he always redacts it.
“I’m not going to sign one just to get a job. I’d like to see a convent not to compete be matched with severance pay and benefits for the period that the employer feels that he or she needs the covenant not to compete. So if you want me not to compete with you for 1 year, then I want a 1-year severance package when I leave your employment, provided I’m not a probationary employee. Then you’re protected and I’m protected.”
Scott said the American Medical Association “got it right” by issuing a policy statement (see sidebar) that urged physician members to “stop signing these things.”
“Unless we all do it, unless we all stop signing them, it’s going to stay an epidemic,” Scott said. — by Carey Cowles
AMA Statement on Restrictive Convenants
According to the American Medical Association (AMA), “a restrictive covenant is a contractual provision between a physician and his or her employer which prevents the physician from practicing in a specified geographic area for a given period of time if the physician’s employment terminates. Restrictive covenants (also called covenants not to compete) are primarily protective mechanisms used by employers to shield their patient bases and referral sources from competition. The covenant also serves to protect the employer’s investment in a physician-employee (ie, recruiting costs, moving expenses, opportunity costs) by encouraging the physician to remain with the employer. Restrictive covenants can benefit physicians as well. If a physician is employed by a group where all of the physicians’ contracts contain covenants, none of the physicians can compete directly with the group upon leaving.
Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services. The Council on Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement. Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician. “
For more information:
AMA principles for physician employment. Available at: www.ama-assn.org/resources/doc/hod/ama-principles-for-physician-employment.pdf. Accessed April 24, 2013.
Restrictive covenants in physician contracts. Available at: www.ama-assn.org/ama/pub/physician-resources/legal-topics/business-management-topics/restrictive-covenants.page. Accessed April 24, 2013.
