Today's Veterinary Business

AUG 2018

Today’s Veterinary Business provides information and resources designed to help veterinarians and office management improve the financial performance of their practices, allowing them to increase the level of patient care and client service.

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51 August/September 2018 • TODAYSVETERINARYBUSINESS.COM First, state laws regarding em- ployee noncompete agreements vary greatly. For example, what might work in Colorado (a care- fully crafted noncompete that is restricted to duration, types of services and geographic area) will not work in California, where employee noncompete agree- ments are prohibited. While most states permit some form of a noncompete agreement, several factors will determine whether the agreement is enforceable: Duration Most states have statutes or established case law regarding how long a restriction on competition can last after employment ends — typically a period of months up to a few years. If an agreement creates a re- striction that lasts too long under applicable law, the agreement may be unenforceable. Scope of Prohibited Activities Employers typically have to detail the types of services that are prohibited, and those services usually need to be the same or closely related to the employee's job responsibilities during employ- ment. For example, it may be diffi- cult to prevent a veterinarian who exclusively treated animals from joining a competing practice where she provides only administrative and managerial support. Geographic Area Though state laws differ, a rule of thumb is that an employer cannot prohibit an employee from competing in geographic areas that extend be- yond those where the employee provided services or had influence during employment. Consideration Received by the Employee "Consideration" is a legal term that refers to what someone receives in exchange for agreeing to be bound by a noncompete agreement. In some states, noncompetes can be signed only at the beginning of a new job or at the time of promo- tion unless a payment is provided to the employee. In other states, the promise of continued employ- ment — even at-will employment — serves as adequate consid- eration for the agreement. This means that it is sometimes permis- sible for an employer to present an employee with a noncompete and explain that she must sign it as a condition to remain employed. Whether the Employee was Discharged or Left Voluntarily In some states, enforceability of a noncompete depends on wheth- er the employer or the employee terminated employment. If an employee can show that she did not engage in any type of misconduct or other wrongdoing, the noncom- pete may not be valid. Pros and Cons Before asking every employee to sign a noncompete agreement, a practice owner or man- ager must consider the pros and cons. On the positive side, a noncompete can be an important tool for protecting a veterinary practice. It can be devastating to spend time and resources recruiting, training and integrating an employee only to have the employee leave and take clients and information that can be exceptionally valuable when start- ing or joining a competing practice. Noncompetes also have their downsides. They can interfere with the recruitment of qualified talent and limit the candidate pool, since some people will not join a practice if required to sign a noncompete agreement. Even if an employer is willing to waive the requirement for an exceptional candidate, the employer might create ill will with employees not given the option. Additionally, noncompete agree- ments can be difficult to enforce. Litigation can be very expensive, and the damages caused by an employee can be hard to prove. Even if an employer has a carefully drafted noncompete agreement and successfully sues a former employee, the actual damages could be far out- weighed by the litigation costs. For that reason, a practice owner should: • Consider how much a breaching employee actually damaged the business. • Weigh the significant time and costs likely to be expended to enforce the noncompete. Other Options A noncompete agreement is not the only tool an employer can use to protect a practice. Here are a few alternatives: Confidentiality Agreement Employees who sign a confidentiality agreement agree not to use or disclose the confidential in- formation of an employer, including customer lists, prices, business plans and any other sensitive financial or business data that isn't known to the public. Employee confidentiality agreements are fairly common and are not nearly as controversial as noncompete agreements. Assignment of Proprietary Rights Particularly for employees who fill technical positions and do any kind of software development or writing of manuals, treatment plans or customer materials, an employer might ask the employee to assign any intellectual property rights in the materials to the employer so that it is clear the materials belong to the employer when employment ceases. Reliance on Trade Secret Laws Although state and feder- al trade secret laws are generally not as protective as a carefully drafted confidentiality or proprietary rights agreement, the laws still provide important protections that every employer can rely upon if a former employee is misusing the employer's sensitive and valuable information. Limited Nonsolicitation Agreements In some cases, a simple alternative to a broad noncompete agreement is a narrow nonsolicita- tion agreement. For example, the employer might prohibit the em- ployee from working for a certain key competitor named in the agreement but allow other forms of competition. Get Legal Advice If drafted properly, noncompete agreements are often enforceable and can provide a powerful tool for protecting a practice's invest- ment in employees. Given the variance in state noncompete laws, a practice owner should work with legal counsel to draft, review and negotiate these agreements. Even if a noncomplete agree- ment is permissible, remember to consider the practicalities and po- tential issues of using and enforc- ing the agreement. After weighing the advantages and disadvantag - es, the employer might want to consider alternatives for protecting the practice or negotiating with a potential employee. Legal Lingo columnist Nicole Snyder is a partner at the Boise, Idaho, law firm Holland and Hart. 1 2 3 4 5 1 2 3 4 Noncompetes also have their downsides. They can interfere with the recruitment of qualified talent and limit the candidate pool, since some people will not join a practice if required to sign a noncompete agreement.

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