Noncompetition Agreements have been restricted in Massachusetts since 2019, the Federal Trade Commission has proposed banning them altogether, and Colorado recently enacted laws lifting an exemption for dental practices from its ban on noncompetition agreements.   However, these agreements still appear in nearly all dental associate agreements in Massachusetts, although they are now limited to one year in length and must include language stating the benefit an employee has received in exchange for agreeing to a noncompetition provision.

What should an employee look for when considering whether a non-competition agreement is fair enough to agree to include in an employment agreement?

Some prospective employees might look at the 2019 Massachusetts law, the provisions of which are commonly known as the Garden Leave Act, and think that they should be given more of a benefit than a contract states for “consideration” for agreeing to a noncompete.  After all, the “Garden Leave” refers to a part of that statute which sets out consideration as one-half of a year’s wages to agree to a noncompete (during which the former employee can “tend to their garden” instead of working and still get paid).

However, because of creative lobbying by businesses in 2019, the “consideration” required by the statute doesn’t have to be anything of importance, but just something mutually agreed to by the employer and employee. Demanding a large sum or something more than the employer offers as “consideration” might be a fruitless exercise, given that this loophole exists.

Geographical restrictions on how far away from the practice an employee can establish or work for a competing dental practice vary widely, considering the density of population and businesses in the area. Two miles in downtown Boston might be reasonable, as would 20 miles in more rural areas of Massachusetts, where there are fewer people to use as a patient base.

Enforcing noncompetition agreements is problematic for employers, since courts can always rule them “not related to legitimate business interests” and invalidate extreme provisions regarding wide geographical or other onerous restrictions. Even if challenged, the one-year duration maximum makes enforcing them through a lawsuit impractical in many cases. If a former employee goes to a larger practice within the geographical area, how can actual damages be alleged when the larger practice already competes with the employer? The addition of an associate with ties to a different practice is unlikely to create significant actual losses for the employer to claim.

The difficulty of proving “actual damages” in enforcement has led some employers to insert extensive “liquidated damages” provisions into contracts, requiring sometimes large sums to be paid out as soon as a single violation is demonstrated.

If there is no relation between the liquidated damages amount and actual damages, however, a court can easily strike that provision down as unreasonable, penalizing, and not related to a legitimate business interest.  The ability of an employer to have Injunctive relief against a noncompete violator is a more reasonable insertion. A  per-violation payment of a smaller amount is also possible, and may be reasonable in some cases.

In dentistry, the rationale for noncompetition provisions is to protect the patient base from associates who may treat patients and then take them with them when they leave employment. To prevent this type of “raiding” of the patient base of the patients they have treated, non-solicitation agreements have highlighted the importance of non-competition agreements instead of non-solicitation agreements. Non-solicitation agreements are not subject to geographical or duration restrictions, so they are always included as a “restrictive covenant.”

Noncompetition agreements and non-solicitation agreements are likely to remain in place for the foreseeable future, as any federal ban is likely to be challenged and revised, making it essential to review the provisions for key language.

Hatch Legal Group
11 Park Street, STE 215
Attleboro, MA  02703
508-222-6400
BrianHatch@HatchLawOffices.com
HatchLegalGroup.com