Dental Tribune U.S. Edition

Non-compete & trade secret agreements Dentists are often concerned about how to best protect their patient base when an associate den- tist leaves the practice. The owner of a dental practice must make sure that associates cannot take the practices’ patient base or employ- ees with them when they leave. There are two methods of preventing this type of devasta- tion to a dental practice, which are non-compete agreements and trade secret agreements. Both of these types of agreements should be incorporated into an associate’s employment agreement. In order to ensure an employment agreement is properly drafted, you should consult with legal counsel who is familiar with dental employment agreements. Non-compete agreements Dentists may have been exposed to a wide variety of terms when contemplating the issue of protect- ing their patient base, such as non- compete agreements, non-com- petition clauses, covenants not to compete and restrictive covenants. These are all different terms used to essentially describe a non-com- pete agreement. A non-compete provision is typi- cally a section of an employment agreement, however, a non-com- pete agreement may also be a sepa- rate document that an associate may be required to sign as part of his or her employment. A non-compete agreement allows the owner of a dental practice to limit a former associate from start- ing his or her own dental practice that competes with his or her for- mer employer, and a non-compete agreement may also prohibit an associate from working for a com- petitor. Generally, non-compete agreements are enforceable; how- ever, state laws may vary. The owner of a dental practice should always consult with his or her attorney before entering into any type of non-compete agree- ment. In order to ensure that a non- compete agreement is enforceable, there are some general require- ments that must be complied with. First, the non-compete agreement must be reasonable in that it pro- tects the legitimate interests of a dental practice. The dentist’s interest in pro- tecting the time he or she has put into training a new associate must be balanced by the associate’s freedom to work where he or she chooses, and the public’s interest in obtaining the services of a par- ticular dentist. The second requirement for an enforceable non-compete agree- ment is that it must have a specific time limit. The shorter the period of time, the more likely the agree- ment will be enforced. Typically, a non-compete agreement with a duration less than three years will be enforceable. The third requirement for an enforceable non-compete agree- ment is that it must contain a rea- sonable geographic limitation. If a former associate moves to a dental practice within a 10-mile radius of a previous employer, and the for- mer associate has a 10-mile non- compete agreement (depending on state law), the court would likely uphold the agreement as valid and issue an injunction against the for- mer employee. However, if a non-compete agreement attempts to restrict an associate from practicing within a 50-mile radius of the associates’ former practice, it may be con- sidered too broad as to the geo- graphic restriction and, as a result, the agreement may be considered unenforceable. If a court determines that certain provisions of a non-compete agree- ment violate state law, the court may utilize the Blue Pencil Rule. This rule allows a judge to mod- ify the terms of the non-compete agreement that may be too burden- some on one party and yet enforce the remainder of the agreement to make the agreement more reason- able. For example, if the non-compete agreement reasonably protects the employer’s legitimate interests and has a reasonable geographic limi- tation but the agreement states that the non-compete is to be enforced for a period of five years, the court may strike the five-year time period and replace it with a two-year time period, and enforce the remainder of the contract. However, some particular states prohibit the use of the Blue Pencil Rule, and as a result, the agreement will be either upheld or invalidated in its entirety. For this reason, it is extremely important that a non- compete agreement comply with state law. Non-compete agreements are widely used in the purchase of a dental practice. If a dentist purchas- es a dental practice, the purchase price by way of special allocation typically includes the personal and corporate goodwill of the seller and patient accounts. However, with- out an effective non-compete, the seller of a dental practice may open another dental practice across the street. A non-compete agreement would prevent the seller from com- peting with the buyer in a specified geographic location for a specified period of time once he/she sells the practice, which would in turn permit the purchaser of a practice to establish his or her new practice. Additionally, when hiring a new employee, a dentist should always ensure that the new employee is not subject to a non-compete agreement with his or her previous employer. In some states, a new employer may be held liable for hiring an employee who violates a non-compete agreement with a former employer. Trade secrets Trade secret provisions in an employment contract will also help protect the patient base of a practice. A trade secret provision should provide that all patients and their confidential information are trade secrets of the practice and note that sanctions will be enforced against any associate or employee who attempts to use this confiden- tial information for his or her own personal gain. Generally, trade secrets law has three components, which are: any information that is not generally known to the public, that confers some type of economic benefit on the holder of the confidential infor- mation from not being publicly Practice Matters DENTAL TRIBUNE | May 20116A By Stuart J. Oberman, Esq. known and to which the behold- er has taken reasonable efforts to maintain its secrecy. In dental practices, patient lists are clearly not public knowledge and such patient information defi- nitely confers economic benefit on the owner of a dental practice. As long as an owner of a dental practice takes reasonable steps to maintain the privacy of his or her patients, patient information is a deemed trade secret and shall be protected accordingly. In a dental office, patient lists are probably the most important asset of a dental practice. In determining whether a patient list constitutes a trade secret, courts will generally look at whether the information on the patients — such as the status of their health, the dental proce- dures the patients have completed and those procedures still needed, the type of insurance the patients carry and amount of insurance the patients have — is not easily ascer- tained by a competitor. Although information readily accessible through public records cannot be considered a trade secret, generally patient lists in a den- tal practice constitute trade secrets and may not be used by a former associate to solicit patients. While it is true that patient names, telephone numbers and addresses may be a matter of pub- lic record, the health records of the patients, the dental treatments they require or the patients’ gen- eral health insurance information is not accessible to the public. This information would therefore con- ‘A dental practice’s most important assest is probably its patient list.’ (Image/Cammeraydave,www.dreamstime.com)