Is My Non-Compete Enforceable? The Answer Might Surprise You
April 29, 2019 by Scott Addison
Non-competes are scary for anyone. I represent many medical professionals, and occasionally a physician will mention she feels stuck by a non-compete. “I am going to have to move away for two years just so that I can come back and open my own practice.” When I mention the non-compete may not actually be enforceable, I generally receive a very skeptical look.
So, I thought I’d take this opportunity lay out some of the basics as to why physicians (and, perhaps, other learned professionals) may or may not be beholden to a non-compete, especially in light of the March 2019 Court of Appeals opinion, Aesthetic Facial & Ocular Plastic Surgery Center, P.A. v. Zaldivar et al.
In general, North Carolina, like most jurisdictions, allow non-competes in employment contracts. That, however, is simply a generality, and there are a number of exceptions as to when those restrictive covenants would be enforceable. The very basic requirements are that the non-compete must (1) be in writing; (2) be part of an employment contract; (3) be based on valuable consideration; (4) be reasonable in scope of time and of territory; (5) not be against public policy.
The first two generally are not a problem . Requirement three can often be an issue. Number four and five are the most important for physicians and other professionals.
Valuable Consideration
First, non-competes require “valuable consideration.” Let’s say you are in a good employment relationship, but the administration comes to you and says, “We are going to need you to sign this new contract that has a non-compete. Nothing else has changed.” That non-compete is simply not enforceable because you have not given up anything in exchange for the new restrictive covenant. Even if you sign the new agreement, the lack of any consideration invalidates the non-compete.
Things get murkier if you receive anything as part of the new agreement, but it still may not be “valuable” enough to warrant enforcement of the non-compete (Would a parking spot be worth it?). The question is many times evaluated on a case-by-case basis.
Scope of Time and Territory
Moving on to scope of time and territory. The basic question courts evaluate when considering the reasonableness of time and territory is whether the restriction reasonably protects the business of the employer. If the restriction extends to 500 miles, that is clearly not reasonable. If the restriction extends to 10 years, that is also unreasonable. Additionally, if the restriction is for 2 years and within 15 miles of the business, but the covenant applies to “any parent, division, subsidiary, affiliate, predecessor, successor, or assignee” of the employer, then the lawyers drafting the non-compete have just invalidated it for their client.
If you are working for a large employer and move 100 miles away to a town where the employer has an affiliate or subsidiary but not in the same practice area as yours, that employer cannot enforce the non-compete against you because your practice does not interfere with the employer’s business in that location. The reasonableness of scope has been heavily litigated, and most health care systems have fixed any problems that have arisen, but you would be surprised to see how many times the non-compete overreaches.
Against Public Policy
Lastly, what does it mean to be “against public policy”? That is such a vague and ambiguous term, but in the context of health care, the courts generally evaluate the non-compete clause to determine whether or not enforcement has a likelihood to harm the public health. Simply put, the courts want to protect all the people, not just the parties to the contract.
For physicians, that practically translates to the question: How specialized are you, and how many of you are in this community? If you are one of 300 pediatricians practicing in your city, the public is not likely to be harmed if you have to sit on the bench for a year due to a non-compete. Your patients will be annoyed and inconvenienced, but the public still has access to plenty of pediatricians.
On the flip-side, if you are one of two fellowship-trained oculoplastic surgeons who trained at one of only thirty institutions recognized by the American Society of Ophthalmic Plastic and Reconstructive Surgery, as was the case in Aesthetic Facial v. Zaldivar, then the court is going to say that the public needs you to be practicing. If the public is going to lose the ability to obtain the medical services you provide if you are forced to sit out, the non-compete will not be enforced.
Of course, there will be gray areas depending on the facts, so it is always good to consult a lawyer before thumbing your nose at a non-compete.
Good To Know
One bonus nugget of interest in this area is courts will not blue pencil non-compete clauses in the individual employment context. What that means is a court is not going to rewrite an unenforceable clause so that it becomes enforceable. For example, in one of the previous scenarios, the court would not scratch out “any parent, division, subsidiary, affiliate, predecessor, successor, or assignee” if that clause is the only portion standing in the way of an otherwise enforceable non-compete. The non-compete is either enforceable as written, or it is not.
Agreements between businesses are treated differently, so do not get confused when someone tells you that the court will find a way to fix any problems. Again, in the context of individual employment agreements, courts will not fix a non-compete clause that is unenforceable as written.
Hopefully, you will never be faced with the need to fight a non-compete agreement but at least you’ll understand the enforceability of the deal a little better when you sign your life away.