How to use non-compete/non-solicitation agreements

Terms of agreements must be reasonable’

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 prevent the loss of patients to other agencies 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 agency at the time the relationship terminates. These agreements also may prohibit employees and independent contractors from soliciting employees and independent contractors of the agency to work elsewhere when the departing employee’s relationship with the agency ends.

Of course, the difficulty with non-solicitation 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 the employee or contractor.

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

In view of the potential limitations of non-solicitation agreements, agencies 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 employees and contractors 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.

The terms of non-compete agreements must be reasonable. If a non-compete dispute arises when an agreement has been signed, what counts as "reasonable" is likely to be determined by a mediator, arbitrator, or judge. But, generally speaking, if the terms of a non-compete agreement amount to deprivation of the ability to earn a living, they will be considered unreasonable.

It is also important for agencies to be meticulous about getting non-compete agreements signed before they hire employees, as opposed to after they have already been employed. Some courts have ruled that non-compete agreements signed by employees who have already been hired are unenforceable.

The crucial issue for many courts is whether employees receive "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 were already employed by the company have successfully argued in court that they received no consideration for signing the agreement, rendering the agreement 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, the agreement was unfair, without consideration, and, therefore, unenforceable.

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

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

  • Ask employees to sign non-compete agreements as a prerequisite to hiring. This may increase the likelihood that non-compete agreements will be enforceable.
  • Agencies should ask current employees to sign non-compete agreements before potential problems with a continued employment relationship are encountered or the agency contemplates layoffs. To the extent that employment continues after employees sign non-compete agreements, they are more likely to be enforceable.
  • Enforcement of non-compete agreements is a rapidly changing area of the law. Agency 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 home health care agencies is increasing. Agencies cannot afford to lose patients and staff to competitors when staff members leave to work elsewhere. All reasonable steps must be taken to ensure that patients and staff are not lost, including the use of non-solicitation and non-compete 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: ehogue5@Comcast.net.]