Is My Non-Compete Agreement Enforceable?
A non-compete agreement is a standard provision in healthcare contracts. Non-competes are in nearly every employment agreement and practice sale agreement. These agreements also often include other restrictive covenants, such as non-solicitation agreements. The non-solicitation provisions often prevent a doctor from poaching patients and staff. However, the non-compete agreement prevents a doctor from working within a certain area for a certain amount of time. Whether you are trying to enforce or challenge a non-compete, you should consult with an experienced attorney to evaluate your situation.
How Do I Know If A Non-Competition Agreement Is Enforceable?
Arizona courts do not have any “bright-line” rules about the enforceability of non-compete agreements. Instead, courts will determine whether the non-compete is reasonable and imposes an undue burden. This means they must not overly restrict a doctor’s ability to earn a living. Reasonableness is measured both by time and geographic area.
The leading Arizona case on non-competes for healthcare providers notes that courts will look at two factors. First, courts will look at whether the restraint is greater than necessary to protect the employer’s legitimate interest. Second, the court will look at whether the employer’s interest is outweighed by the hardship to the individual doctor. Courts generally do not enforce a non-compete that prevents a doctor from earning a living. Courts will also consider whether the non-compete will potentially harm the public. This includes considerations such as limiting access to qualified treatment providers.
What Is A Reasonable Non-Compete For An Associate Agreement?
For employment contracts, we generally advise a radius of 3-5 miles and a duration of 1-2 years. At least, if the practice is located within the Phoenix or Tucson metropolitan areas. For practices in small towns or rural locations, different reasonableness standards apply. This is especially true if it will limit the number of providers in the area. There are good reasons for an employer to have a non-compete in place. The employer has a legitimate need to protect the investment in the practice and preserve the patient base. However, the employer also must take care not to overly restricting the associate’s ability to look elsewhere for employment.
Does It Matter If The Non-Compete Is In A Practice Sale?
Yes, the type of contract in which the non-compete appears is another important consideration. Employee non-competes are less likely to be enforced than non-competes in practice sales. This is because of the reasonableness requirement. When a doctor has paid hundreds of thousands, if not millions, of dollars to purchase a practice, he or she will have a greater need to protect the investment in the practice than a doctor who is employing an associate.
For this reason, we typically use a radius of 10 miles from the practice location for a period of 2 years for practice sales. This can vary, though, especially if the doctor is obtaining a loan to purchase the practice. Lenders often have specific requirements for non-competes that must be included in the purchase agreement. If the lender has such a requirement, we include that in the contract, but we also must often include what are known as step-down provisions to ensure that the non-compete is enforceable.
What Is A Step-Down Provision?
A step-down provision is a term in a non-compete that provides an alternative restriction, in the event a court finds the original restriction unenforceable. This is due to a wrinkle in Arizona law. If an Arizona court finds a non-compete provision to be overly broad, it will not simply limit the non-compete to what it believes is reasonable. Instead, the court will strike the non-compete entirely. The step-down provision allows for an alternative, so if the court finds a 10 mile radius unenforceable, the step-down provision will have a smaller alternative radius, perhaps 5 or 7 miles. The main goal is to preserve some level of protection, even if the original non-compete is found unenforceable.
The Takeaway
Regardless of the context, both sides to a non-compete agreement are best served by agreeing to a reasonable restriction on the ability to compete. The owner/employer can preserve his or her investment in the practice, while the associate/seller can have a clear understanding of any future limitations on the ability to practice. If you have any questions regarding restrictive covenants in associate agreements, especially in Arizona, please feel free to contact one of our attorneys directly.