How Doctors Can Make Their Non-Compete Agreements Rock-Solid

The future of restrictive covenants

An emerging trend might make much of this discussion moot in the near future. As in many other areas of social policy, California took the lead several years ago by enacting a statute that bars enforcement of restrictive covenants in most employment agreements. Although no other state followed California’s lead at the time, several states, including New Jersey, fueled by public policy concerns about unemployment, are now considering legislation that would restrict enforcement of restrictive covenants in employment agreements.

In addition, the “Mobility and Opportunity for Vulnerable Employees Act” (“MOVE Act”) was recently introduced in the US Senate. If enacted, it will limit the use of non-competition agreements for certain low-wage employees of companies involved in interstate commerce. This trend to further curtail enforcement of restrictive covenants makes it even more important that contracts containing them be drafted as precisely as possible.

The take-away

For now, at least, restrictive covenants continue to be generally enforceable, except in California, subject to the principles discussed above. At the same time, courts remain cautious about restraining trade and will not enforce them unless they are narrowly tailored to protect a legitimate business interest. For these reasons, to assure that your employment agreements with restrictive covenants are enforceable, you should:

• Limit their use to key employees who have access to patient relationships and other trade secrets.
• Draft employment contracts to track the definition of “trade secret” in your state’s trade secret act.
• Choose the least restrictive type of covenant that will get the job done. Do not use a non-competition agreement where a less restrictive non-disclosure agreement will suffice.
• Define as precisely as possible the restricted activities.
• Limit the geographic scope and duration of the restriction to what you really need to protect your business.
• Consider any public policy concerns that might be triggered by enforcement of your contract.
• Before imposing a new restrictive covenant on an existing employee, check with an employment lawyer in your state; many states, including Pennsylvania and Delaware, require that new consideration be given to the employee to make the newly imposed restriction enforceable.

To make your restrictive covenants rock-solid and give them the best chance of being enforced, seek to protect only legitimate business interests, resist the urge to prevent lawful competition, and choose the least restrictive option to protect those interests.
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Philip Kirchner is a Chair of Flaster/Greenberg’s Litigation Department headquartered in Cherry Hill, NJ. He concentrates his practice on resolving business disputes, including complex litigation of all types of business issues in both the federal and state courts of New Jersey and Pennsylvania. He can be reached at 856.661.2268 or phil.kirchner@flastergreenberg.com.