Are Non-compete clauses legal?

Are Non-compete clauses legal?

In order to understand whether non-compete clauses are legally binding and the kind of consequences that they can bear, it is important to understand what these clauses really are. A Non-compete clause, also known as covenant not to compete (CNC), is an agreement between two parties wherein one of them (usually the employee) agrees to not get engaged in a similar profession in competition against the other party (the employer).

The main aim of non-complete clauses is to protect the employer’s business interests or trade secrets. However, sometimes these clauses can be so far reaching that they can completely choke the employee’s ability to work anywhere else. Those in a medical profession can well imagine the damage these agreements are potent of causing. Therefore, CNCs being an important part of physician contracts must be reviewed at great length.

The validity of non-compete clauses is a matter of great debate. Non-compete agreements are legally enforceable only to the extent necessary to protect the employer. There have been many instances where CNCs have been deemed to be invalid by the courts for going over-board. Listed below are some of the key features of a valid CNC:

  1. Consideration

Consideration refers to some form of compensation for the employee, in lieu of the agreement. For a new employee, this consideration may be the awarding of the job itself. For existing employees, the consideration can come in the form of bonuses or special perks.

  1. Unambiguous with respect to scope, duration, and geographic area

The agreement should clearly state its scope and the exact business interests it seeks to protect. If an agreement contains clauses meant to restrain honest competition in the industry, its validity becomes questionable. The agreement must also clearly mention the duration of its validity and the geographic areas it is restricted to.

  1. Validity as per jurisdiction

The extent to which a CNC is considered legally enforceable varies with jurisdiction. For example, the state of California invalidates all kinds of CNCs, except for those pertaining to equity stakeholders in businesses.

As the medical sector deals in a vast amount of activities pertaining to drug research, surgical technology, new diagnostic techniques, etc., non-compete clauses are indispensable. But at the same time they need to be genuine in order to be valid. Also, given the fact that their legal enforcement is highly variable with respect to the state and the individual case itself, it is advisable to have them examined by a qualified consultant.

At Contract Diagnostics, our specialty lies in helping physicians understand the terms and conditions of non-compete documents, and the potential effects these can bear on the future of their career, thereby guiding them towards well-informed decisions. The work involved in reviewing physician contracts is done entirely by us, unlike many other consulting firms that outsource it to third parties. It is this specialization that makes our experienced consultants the most trusted choice for doctors from all walks of the medical sector.

Salus Resource Group

Salus Resource Group - Salus Resource Group is a collection of business owners and professionals that serve physicians and dentists across various disciplines.