Non Compete Agreements: Keeping your Medspa staff from killing you.

practice-emplaw.gif Are Non compete Agreements Valid?

It's common for physicians to ask about how to prevent nurses, estheticians, or even other physicians from leaving to work for a competitor?

Many physicians ask their staff to enter into broad non compete agreements or employment contracts with non compete provisions to prohibit departing employees from working for a competitor or from using information they acquired while working for you. Or perhaps you just want to specify how soon an employee can begin working in a similar business.

There are problems with many non compete agreements valid and if overly broad they're not legally enforceable?

As a general rule, non compete agreements--often referred to as agreements or covenants not to compete--aren't valid or are not readily enforcible. In most states, there's a longstanding, strong public policy against such agreements since they're often so one-sided and impinge upon an individuals ability to make a living which is frowned upon by legislatures. The rationale for this policy is to ensure that employees have the right to pursue any lawful employment of their choice. (The California Legislature has enacted a law that declares void every contract that prevents someone from engaging in a lawful profession, trade or business of any kind.) Of course, as with most laws, there are exceptions provided in the law and created by the courts. In most states, the courts have carved out an exception to the general rule that covenants not to compete are void. They're typically permitted when deemed necessary to protect valid trade secrets of the employer. When former employees engage in unfair competition through the unauthorized use of trade secrets or confidential information, the courts will generally enforce proper non compete agreements.

A non-compete agreement which prohibits someone from working anywhere is far less likely to be valid than one which prohibits someone from working within 10 miles of the former employer’s business but this will depend on the kind of work. Your medical spa may have an interest in keeping an esthetician you trained from competing across the street, but if the non-compete agreement says nowhere in the state, it becomes less reasonable. If the esthetician can find a job in the state 50 miles away, most of the clients will not travel that distance for the service, but will stay with your medspa. On the other hand, this non-compete could force the esthetician to move to look for work or otherwise to travel hundreds of miles.

A non-compete must also be for a limited and specified time. If the esthetician is gone for a year, the medical spa can expect that the vast majority of the customers will have stayed and the estheticians departure will likely do little harm to the business. Thus, keeping the esthetician out of work for three years does little to help the business, but seriously harms the esthetician .

Depending on the circumstances and the language used, agreements not to compete signed by employees when starting a new job can prevent them from legally using secret formulas, recipes, certain protected customer lists and other trade secrets. Of course, merely labeling information as a trade secret or as confidential doesn't make it so. Disputes as to whether certain information is truly secret or confidential are decided by the courts on a case-by-case basis.

A similar issue arises when an employment agreement attempts to prevent a departing employee from taking other employees with them to a competitor. Such non-interference agreements aim to prohibit employees from soliciting other staff members to leave the employer. It's clearly improper for a departing employee to induce fellow employees to breach their employment contracts. On the other hand, if there's not an employment contract, nothing prohibits employees from deciding to join a colleague at a new employer.

In the end, to be valid a non-compete agreement must be narrowly tailored to meet the needs of the employer which will be balanced against those of the employee. If you are preparing a non-compete agreement, you need an experienced lawyer to draft it in a way that it will not be held invalid. If you are dealing with a non-compete agreement as an employee, there are lots of ways to attack it.

However, there are ways to accomplish what you're trying to do without having to rely on non-compete agreements exclusively. The key is that any agreement must be made by knowledgeable and informed parties and can't limit an individuals ability to make a living. 

When Surface was first formed I had all of our staff sign non-competes since they were constantly being poached by both competitors and schools who wanted to boast that "the instructors worked at Surface". I found that my energies were better spent elsewhere. My staffs will often receive boastful offers from competitors. Interestingly, they're almost never accepted. (The last one was years ago.) Why? I'm transparent with my staff to an extent that they know they can trust me. (Another post on this later.) 

We do prevent our physicians from competing directly with us, but it's not through non-competes.

Of course, as with any legal matter, you are always advised to consult an employment law attorney when considering anything legal. If you do something stupid, it's your fault.