Using nonsolicitation, noncompete agreements

By Elizabeth E. Hogue, Esq.
Burtonsville, MD

Competition among home health agencies for referrals can be fierce. Agency managers are increasingly concerned about employees and independent contractors who leave agencies and take patients with them. Agencies have used a variety of strategies to combat the loss of patients to other agencies when former employees or contractors take patients with them including nonsolicitation agreements and noncompete agreements.

Nonsolicitation agreements

Nonsolicitation agreements frequently require employees and independent contractors to agree not to solicit patients who currently receive services from the agency at the time the relationship terminates. They also may prohibit former employees and independent contractors from soliciting employees and independent contractors of agencies to work elsewhere at the time relationships end. Of course, the difficulty with nonsolicitation agreements is that it may be difficult to prove that solicitation occurred.

Former employees and independent contractors may claim, for example, that patients who switched agencies did so on their own without any encouragement from them, much less solicitation. Nonetheless, it may be helpful to ask employees and independent contractors to sign nonsolicitation agreements because it may deter them from engaging in attempts to get patients and staff to change agencies.

Noncompete agreements

In view of the potential limitations of nonsolicitation agreements, agencies also have utilized noncompete agreements. Those 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 agencies recognize that the terms of noncompete agreements must be reasonable. However, what is reasonable is likely to be determined by a mediator, arbitrator, or a judge in a courtroom. But generally speaking, if the terms of noncompete agreements amount to deprivation of the ability to earn a living, they will be considered unreasonable.

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

The crucial issue for many courts is whether employees receive consideration in exchange for signing a noncompete 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 noncompete agreements after they already are employed have successfully argued in court that there was no consideration for the agreement so they are unenforceable.

Of course, employees asked to sign noncompetes always can quit their jobs, but some former employees have claimed that they could not realistically do so. Since signing a noncompete 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 noncompete agreements and continue to be employed, their continued employment was consideration for signing noncompete agreements. After all, employers could have fired them if they refused to sign the noncompete agreements.

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

1. Ask employees to sign noncompete agreements as a prerequisite to hiring. This may increase the likelihood that noncompete agreements will be enforced.

2. Agencies should ask current employees to sign noncompete agreements before potential problems with a continued employment relationship are encountered or the agency contemplates layoffs. To the extent that employment continues after employees signed noncompete agreements, they are more likely to be enforced.

3. Enforcement of noncompete agreements is a rapidly changing area of the law. Agency managers should review their agreements periodically and any applicable state statutes and regulations and make amendments to them as needed to help ensure enforcement.

Competition among home health care agencies is increasing. Agencies cannot afford to lose patients to others when staff members leave to work elsewhere. All reasonable steps must be taken to ensure patients are not lost, including the use of nonsolicitation and noncompete agreements.

[A complete list of Elizabeth Hogue’s publications is available by contacting Elizabeth E. Hogue, Esq., 15118 Liberty Grove, Burtonsville, MD 20866. Telephone: (301) 421-0143. Fax (301) 421-1699. E-mail:]