Conspiracy theory: Excluding competition from nearby veterinary clinics

Conspiracy theory: Excluding competition from nearby veterinary clinics

There are real-world effects if a handful of clinics from the same geographic area foster an anticompetitive environment.
Jan 01, 2014

Our office consults on a large number of veterinary employment contracts every year on behalf of both employers and associates. But during the past year or so, I have started to notice something unusual—a pattern in the use of certain contractual terms in certain geographical regions, which has caused me to take pause.

I'm certainly no conspiracy theorist and have no direct proof that anyone anywhere is intentionally doing anything they shouldn't be. Nonetheless, some of what has crossed my desk recently concerns me. It has brought back from the recesses of my memory images of past efforts—within isolated elements of the veterinary profession—to engage in restraint of trade.

Everybody knows that there are federal and state legal prohibitions in place against such barriers to fair competition as price fixing and referral kick-backs. But is it possible that one could imagine a new twist on an old anticompetitive idea? Let's examine the way employment contracts could be used inappropriately by using a tool from law school, the hypothetical.

Imagine that in the rural southern community of Blackacre (law school hypotheticals always take place there), there is just enough of a client base to support five small animal veterinary clinics. Employment is stable in Blackacre, but the population isn't growing. Nonetheless, the owners of all five practices are doing pretty well.

None of the five practice owners wants to work all the time, so at some point they have all either hired or considered hiring an associate or two. Remarkably, whenever a new doctor is offered a job at any of the local practices, he or she finds one or both of the following things in the employer's proposed employment contract.

The draft agreements of each of the clinics in town contain noncompetetition terms, which describe a noncompete radius that would cover a distance beyond all of the other four hospitals in Blackacre. Others go even further and specify that if an employee does go to work within such a proscribed radius, he or she would agree to pay several thousand dollars in liquidated damages for the privilege of doing so. (Such contract terms are sometimes referred to as noncompete buyouts.)

At this point in our hypothetical, readers might say that: a) the noncompete distance is unreasonably far; b) most associates would not have the funds to pay such liquidated damages; and c) the associate would likely win in a court challenge as to the enforceability of such noncompete terms.

These are all arguable points. But look at the facts more deeply—what is to be made of the fact that all the clinics in Blackacre offer their associate candidates the same general terms?