Competition in the dental industry is getting tougher every day. Between large, low-cost dental chains that pry clients away from smaller boutique practices, and spas and salons that offer cosmetic procedures like teeth whitening, it can be difficult for some dentists to remain profitable.
In order to stay successful, dental offices not only need to take in new patients, but also keep the loyalty of their existing patients, associates and staff. One of the strongest ways to protect your office’s goodwill is to create a strong non-compete agreement for all the dentists in your practice.
The Basics of a Non-Compete Agreement
A covenant not to compete, also known as a non-compete agreement, or restrictive covenant, is a clause in a contract that prohibits the restricted party from engaging in services similar to those of the non-restricted party. These clauses are commonly found in employment agreements, but are also useful in contracts to purchase an existing dental practice.
A non-compete agreement may restrict a dentist’s actions by time, location, and clients. For example, a non-compete agreement may prevent a selling dentist from opening up a new practice within five miles of the existing practice and for two years after the date the dentist sells his or her practice. A non-compete can also prohibit the dentist from soliciting patients from the existing practice client list, as well as referral sources, and can prevent a dentist who leaves the practice from stealing current office staff.
These agreements are especially helpful in specialized dental practices, because they prevent a specialist from joining the office, working for a year, and then leaving to open up a new, competing office using all of the techniques learned at the original practice. Likewise, a non-compete agreement that is part of a contract for the purchase of an existing specialty dental practice keeps the selling dentist from opening up a new office nearby and taking back all of his or her former patients.
Don’t Go Overboard
Non-compete agreements are a necessary tool for keeping your business and your patient list intact. But before you have every employee in your office sign a covenant not to compete, you need to keep in mind that these agreements may not be enforceable if they are overbroad or unnecessary, or prohibited altogether in the state where your practice is domiciled. Non-compete requirements are always subject to the law in the state(s) where your practice does business.
Most states require covenants not to compete to be reasonable in both time and location, and the court decisions interpreting these covenants usually take the specific circumstances into account.
For example, a 20-mile non-compete parameter in New York City would likely never be deemed enforceable; however, the same exact parameter in rural Texas may. Also, keep in mind that in many states, non-compete agreements usually only restrict employees with specialized training, like dentists. Such states deem it unreasonable to, say, place a non-compete on your receptionist when that employee is not likely to adversely affect the health of your business. For these types of employees, a confidentiality agreement would be more appropriate.
Staying on the Right Side of the Law
Covenants not to compete are often the best way to protect your business from unfair competition, but many state courts do not look them upon favorably. The average individual has a right to receive health care from his or her choice of provider, and all dentists have a right to earn a living in their chosen career. When a non-compete agreement is overbroad, everyone suffers, and most states strongly discourage restraints on trade.
How restrictive your non-compete agreement can be depends heavily on your state. For example, California and Colorado are notoriously hostile to non-compete agreements. Most California and Colorado non-compete agreements are automatically invalid, except for certain limited circumstances. In contrast, other states are more accepting of covenants not to compete, and a court in these states will simply modify the contract to make it legal if there is ever a lawsuit.
The rules governing non-compete agreements are complicated, and the best way to ensure that your practice is protected is by using a skilled attorney to create your agreement. Your attorney can draft your practice’s partnership agreements, employment contracts, and purchase agreements to make sure that you are protected to the fullest extent of the law.
In today’s economy, it is more important than ever to safeguard the goodwill your office has created with your patients. You worked hard to build your business—make sure you protect it by working with a knowledgeable dental attorney to create a non-compete agreement that will defend your practice for years to come.
Attorney David Cohen represents both individual dentists and dental offices throughout the United States. The Cohen Law Firm, PLLC focuses on helping dentists manage their practices by creating incorporation documents, partnership agreements, employment contracts, and dental practice purchasing agreements. For more information on how David Cohen, Esq. can assist you with your dental practice needs, visit www.cohenlawfirmpllc.com.