Use of non-solicitation, non-compete agreements

By Elizabeth E. Hogue, Esq.

Competition among providers for referrals can be fierce. Managers are increasingly concerned about employees and independent contractors who leave organizations and take patients with them.

Providers have used a variety of strategies to combat the loss of patients to other providers when former employees or contractors take patients with them, including: non-solicitation agreements and non-compete agreements.

Non-solicitation agreements frequently require employees and independent contractors to agree not to solicit patients who currently receive services from the company at the time the relationship terminates. They may also prohibit former employees and independent contractors from soliciting employees and independent contractors of companies at the time relationships end to work elsewhere.

Of course, the difficulty with non-solicitation agreements is that it may be problematic to prove that "solicitation" occurred. Former employees and independent contractors may claim, for example, that patients who switched companies did so on their own without any encouragement from them, much less any solicitation.

Nonetheless, it may be helpful to ask employees and independent contractors to sign non-solicitation agreements because it may deter them from engaging in attempts to get patients and staff to change companies.

In view of the potential limitations of non-solicitation agreements, providers have also utilized non-compete agreements. These agreements may, for example, prohibit employees and independent contractors from working for other providers of similar services within a specific geographic area for a specified period of time. Or they may prohibit them from providing services to patients that they cared for at the agency for a specified period of time after the relationship with the agency ends.

Many providers recognize that the terms of non-compete agreements must be reasonable. What is reasonable is likely to be determined by a mediator, arbitrator or a judge in the courtroom. But, generally speaking, if the terms of non-compete agreements amount to deprivation of the ability to earn a living, they will be considered unreasonable.

With regard to non-compete agreements it is also important for providers to be meticulous about getting these agreements signed before they hire employees as opposed to after they have already been employed. It is important to get non-compete agreements signed before staff members are employed because the courts in some areas of the country have ruled that non-compete agreements with existing employees are unenforceable.

The crucial issue for many courts seems to be whether or not employees receive something called "consideration" in exchange for signing a non-compete agreement.

With regard to employees who sign agreements before they are hired, the consideration is clearly getting the job.

Employees who were asked to sign non-compete agreements after they are already employed have successfully argued in court that there was no consideration for the agreement, so they are unenforceable. Of course, employees asked to sign non-competes can always quit their jobs. But some former employees have claimed that they could not realistically do so. Since signing a non-compete agreement did not guarantee continued employment, it was unfair, without consideration and, therefore, unenforceable.

On the contrary, other courts have concluded that when existing employees sign non-compete agreements and continue to be employed, their continued employment was consideration for signing non-compete agreements. After all, employers could have fired them if they refused to sign the non-compete agreements.

What should providers do in response to the different conclusions reached by courts in various jurisdictions about these issues?

  • Asking employees to sign non-compete agreements as a prerequisite to hiring them may increase the likelihood that non-compete agreements will be enforced.
  • Providers should ask current employees to sign non-compete agreements before potential problems with a continued employment relationship are encountered, the company contemplates layoffs, etc. To the extent that employment continues after employees sign non-compete agreements, they are more likely to be enforced.
  • Enforcement of non-compete agreements is a rapidly changing area of law. Managers should periodically review their agreements and any applicable state statutes and regulations and make amendments to them as needed to help ensure enforcement.

Competition among providers continues to "heat up." Providers cannot afford to lose patients to others when staff members leave to work elsewhere. All reasonable steps must be taken to ensure that patients are not lost, including the use of non-solicitation and non-compete agreements.