For your consideration: The laddered noncompete

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For your consideration: The laddered noncompete

New veterinary talent wants noncompete language that won’t be unfairly burdensome. Employers want noncompete language that will hold up in court. Could a laddered noncompete serve both interests?
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Oct 30, 2017

Shutterstock.comWhen a veterinary practice offers a position to an associate veterinarian and provides a contract for her to sign, one of the very first points that doctor is likely to focus on is the noncompete language—and for good reason.

From day one, the veterinarian is burdened by a restrictive covenant lasting a full two years—even if the practice (or the doctor) chooses to end the relationship within just a few months. Regardless of how long the doctor works at that practice, the noncompete term (let’s say, for example, a two-year period) will not even begin to run until after the doctor leaves the practice. So if the veterinarian starts at the practice in 2017 and works there for 10 years, that noncompete doesn’t expire until 2029.

The practice, on the other hand, can typically lay off or fire that associate veterinarian at any time with as little as 30 days’ notice, depending on the contract.

The concerns for the doctor are obvious, but there should be genuine concern on the part of the veterinary practice as well, as there is a real question regarding the enforceability of that two-year noncompete. 

Let’s say, for example, that the newly hired doctor decides the practice isn’t a good fit and departs after only three months. If she goes to work for a competing practice in violation of the noncompete term, the first employer must hope that the terms of the noncompete are enforced—that the judge will look at the circumstances and the contract and decide that a 24-month noncompete for a worker who has only been employed a few months is fair enough to pass the “smell test.”

In order to explore a better way of serving these competing interests, we’ll need to start with an overview of the legal theory in play in this dispute over what a layperson might call simple fairness but that lawyers have termed “consideration.”

Let’s consider consideration

There is a concept in contract law that defines what’s required for a true contractual relationship to be formed. One requirement is a “meeting of the minds,” which means that both sides agree to the fundamental terms of the deal. Another requirement is that something be relinquished or given up by both sides. That something is referred to as “consideration.” Without consideration, a transfer of goods or services from one party to another is merely a gift, and contract law and the law of gifts are entirely different. 

Under common law, consideration may be virtually anything of value. For example, the deed to your house probably starts out with the words, “For one dollar and other good and valuable consideration … ” Deeds often don’t reveal the actual price of a house, yet deeds must include a reference to some consideration or the transfer of ownership would be void.

Consideration has changed considerably

Today, public policy has made changes in the enforceability of contracts, particularly where human rights and human labor are involved. Many courts and legislatures have intervened in employment relationships and altered the old concept that anything of value may be adequate consideration for an employment contract.

Thus, while it would theoretically constitute an enforceable contract under common law for a Delaware veterinary clinic to offer a one-year employment deal to an associate in exchange for $100,000 and a promise to never practice veterinary medicine east of the Mississippi River for 100 years, even to the legally untrained, that doesn’t seem like a fair trade. And in court, that noncompete term would almost certainly collapse.

As is always the case, fair consideration is whatever a judge (or an appellate judge) says it is. And clearly, both sides in an employment contract want the consideration to be fair. The associate wants the noncompetition language in the contract to be reasonable so that she isn’t unduly burdened by the commitment, and the employer simply wants it to be fair enough that it won’t be thrown out in court. The spot where these two interests meet is the ideal noncompete. To that end, I propose the “laddered” noncompete.

What is a laddered noncompete?

A laddered noncompete is one that gives the newly hired veterinarian a fair opportunity to assess how well she fits with the new practice without being immediately burdened by a promise not to work elsewhere nearby for a long period of time. Here is how the laddering might work:

The DVM could spend the first two or three months learning the ropes and getting to meet her coworkers before entering a noncompete commitment. As a practice owner myself, I know it takes a while—maybe a few visits or a couple of recheck appointments—for a client or a family to bond with a new veterinary practitioner. The clinic has little reason to worry that the new doctor will develop such a following in the first few months of employment that she’ll be able to divert clients to some other competing clinic should she choose to bow out at the close of the entry period.

In addition to providing a couple of months of “tire-kicking” for both the hiring practice and the new hire, laddering allows the noncompete commitment to be gradually phased in instead of 100 percent locked in all at once. For example, a laddered noncompete could call for a five-mile, 90-day noncompete commitment to take effect after two months of employment. After six months, the commitment could increase to one year. After the end of year one, the noncompete could become fully engaged—to perhaps 18 or 24 months. 

What’s in it for the employer?

Plenty.

First, a laddered noncompete provides an inherent benefit to the veterinary clinic in that it clearly shows an effort on the part of the employer to be fair. Laddering demonstrates that the practice is only interested in protecting its business, not in preventing the hired DVM from being able to earn a living. And when a noncompetition covenant is interpreted by a court, it’s much more likely to stand when fairness is built in. It’s also less likely to make a potential new hire edgy and uncertain about trying out the job.

A laddered approach offers clinics another benefit that’s less obvious. Try to imagine the level of resentment a veterinary associate, burdened by a two-year noncompete, would feel after deciding to leave a new clinic job shortly after being hired because the schedule, work environment or level of practice quality was misrepresented. 

That veterinarian would very likely land somewhere outside the noncompete, and then the frustration and feelings of victimization (justified or not) could be shared with other area DVMs at local veterinary association meetings and on the internet. This could have a serious negative impact on the former employer’s ability to recruit new talent, perhaps for years to come.

On the other hand, a laddered noncompete allows a new hire to depart on good terms while having an enhanced likelihood of enforceability with respect to its noncompete.

With the question of whether a laddered noncompete can serve the diverging interests of both the associate veterinarian and the hiring clinic answered, this question remains: Will anyone be willing to give it a try?

 

Christopher J. Allen, DVM, JD, is president of the Associates in Veterinary Law PC, which provides legal and consulting services exclusively to veterinarians. He can be reached via e-mail at [email protected]