Employee Restrictive Covenants in the Practice of Dentistry
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Why are you breaking up?
The cause of the termination of the employment relationship can
also impact the enforceability of the restrictive covenants. If an
employee is terminated for reasons other than willful misconduct,
there is a strong argument that the restrictive covenant should not
be enforceable. The theory behind this is that if an employer deems
an employee no longer worthy of keeping, that employee should
not pose a significant competition threat.
Another factor that takes on importance in the dental setting is
the fact that patients ultimately retain the right to select from
whom they seek for treatment. Due to this fact, it is very difficult
for someone to prevent a patient from seeking the services of a
particular dentist. To address this situation, most restrictive covenants
will not only contain a non-compete clause, but also a non-solicitation
clause which prevents the employee from contacting or soliciting
patients of the employer. With the existence of such a provision,
the former employee should be careful so as to not directly contact
former patients or specifically advertise for their business.
From an employer standpoint, careful consideration should be given
to any contractual penalties that are contained in the restrictive
covenant. Oftentimes the agreements will attempt to impose a
per-patient penalty (sometimes called “liquidated damages”).
Again, for there to be a likelihood for such a provision to be
enforceable, the penalty should bear some logical relation to the
value of the patient and not merely be punitive. Also recognize
that many contracts include a right for the prevailing party to
recover attorneys’ fees, which could prove to be a significant amount.
The agreements also typically provide an acknowledgement that
a breach of the restrictive covenants will result in the granting
of injunctive relief. This means that the court can enter an order
enjoining or stopping the prohibited acts (in these cases, competition).
At an extreme, this could result in the closure of the former
employee’s new office. Also don’t forget that while we often think
of restrictive covenants as preventing employment or solicitation,
they can also be used by former employers to seek monetary
damages. An employer may choose to not seek an injunction, but
may sue only for monetary damages such as lost profits, goodwill
and other damages it has sustained because of an employee’s
violation of a restrictive covenant. These damages can be hard to
predict and if they get too out of hand could result in a crippling
monetary judgment to the offending employee.
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In conclusion, if you find yourself as a
prospective employer or existing employee facing
the possibility of entering into a restrictive covenant,
it is strongly suggested that you consult with counsel
familiar with such provisions prior to signing on the
bottom line. A relatively small investment in terms
of legal fees at the inception of the relationship
could save you thousands of dollars and weeks to
years of inconvenience and hardship down the
road. If, as an employer, you are contemplating having
employees execute restrictive covenants, recognize
that indentured servitude is no longer permitted.
Calculate what level of reasonable protection you
actually need and have your agreement crafted to
accomplish this goal. This is the best tactic to get
the protection you need.
Thomas J. Weber, Esq.
serves as general
counsel to PDA and
PDAIS. He devotes
a substantial portion
of his practice to
dental-related matters,
including professional licensure and malpractice
defense, and frequently writes and lectures
on legal issues and practice-related issues
pertinent to dentists. Tom also is a shareholder
in the Harrisburg law firm Goldberg Katzman,
P.C. where he serves on the executive committee
and is chair of the civil litigation department.
He can be reached at [email protected].
The term “restrictive covenants” is used to encompass the
most likely restrictions an employer may seek to impose
on an employee. They cover non-compete clauses, as well
as restrictions from soliciting patients or other employees.