Suite 910
Philadelphia, PA 19102
215.569.0000
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One Oxford Centre
Suite 4300
Pittsburgh, PA 15219
412.255.3767
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Sentry Office Plaza
Suite 602
216 Haddon Ave.
Westmont, NJ 08108
856.858.9499
Disclaimer
 Restrictive Covenants by Warren Vogel Healthcare practices often seek to protect their patient lists and their investments in new employees by requiring that such new hires sign covenants not to compete. Typically, these covenants are intended to prohibit a staff member from competing with the practice for a period of time after termination of employment within a defined geographic area or from contacting patients to encourage them to follow the staff member to his or her new practice. While such agreements are generally viewed as a legitimate means of protecting an employer's interest and the goodwill of the practice, it sometimes offends the American notion that each of us should be free to pursue our own fortunes; an individual, particularly one who has spent years and thousands of dollars to earn a professional degree, should not be limited in where and how he or she may practice that profession. Thus, over the years, courts have displayed a reluctance to enforce agreements, even those voluntarily signed, which restrain one's ability to earn a living. Some courts now enforce restrictive covenants only if they are unable to find a reason not to. It is critical, then, that employers be mindful of all of the requirements for an enforceable covenant and that those requirements be scrupulously followed if there is to be any expectation that the practice will be able to protect its investment. The standards for the enforcement of a restrictive covenant are essentially the same in both Pennsylvania and New Jersey. The covenant must be incidental to a contract of employment, must be supported by good and valuable consideration and must be reasonable in both length and geographical scope. A failure to satisfy any one of these requirements will almost invariably result in the court finding the covenant unenforceable. The first requirement is fairly obvious. A court will not enforce a covenant except if it is related to employment. For example, a court will not enforce a covenant not to compete made part of a loan agreement not directly related to employment. Consideration is a requirement of all contracts; a person will not be held bound to a covenant without there having been some benefit to the employee. Typically, the consideration for the covenant is employment itself; if one accepts employment understanding that a condition of employment is the execution of a covenant, the fact of employment will support the promise not to compete. However, a mere continuation of employment will not suffice. Even if an employer has the right to fire the staff member without cause, a staff member will not be held bound by a covenant entered into after employment commences without there having been some additional consideration. That other consideration may be a bonus, a non-scheduled raise, a new employment benefit or a promotion with attendant new benefits. Finally, a covenant must be limited in both geographical scope and duration to what is reasonable to protect the practice's interests. Geographical scope is often determined by the nature of competition in the area; in a densely populated area, with multiple practitioners in the particular specialty, the effective area of competition is likely to be fairly small. On the other hand, where the specialty is practiced by a small number of practitioners in an area such that patients can be expected to travel some distance for treatment, a wider geographical scope may be imposed. Similarly, the time limit of a covenant must be reasonably related to protect the practice's goodwill. Where patients are seen on a regular basis, such as in an ob/gyn practice, the covenant may be keyed to the frequency of visits. Generally, a covenant longer than two years will not be enforced and where there is already significant competition a covenant of one year may be all that will be enforced. There are other technical requirements of restrictive covenants which if not addressed can be the basis for non-enforceability. We recommend that you contact us whenever a new staff member is being considered, and if a covenant against competition is to be made a part of his or her employment. We will be happy to review your expectations and to assist you in the preparation of the documents necessary to assure, to the maximum degree possible, that those expectations will be met. Warren Vogel is chairman of the firm's business department and has counseled numerous health care professionals in business and tax matters affecting practices and professionals, individually. For more information contact Daniel Bernheim, Esquire Copyright 2002 by Silverman Bernheim & Vogel - All Rights Reserved. << Back to Article Index |
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