Cover Story

8 ways to escape your employer

Unhappy—and feeling fenced in by a noncompete clause? Chances are you can break free, with little or no penalty.

By Mark Crane
Senior Editor

Human nature being what it is, the first doctor in practice probably worried that the second would try to steal his patients someday. That's the main reason practices often insist that a restrictive covenant, or noncompete clause, be part of the contract when a new physician comes onboard. Typically, these clauses prohibit the new doctor from engaging in direct competition over a set time period and location after he leaves the practice.

The stakes are high. The physician who leaves could find himself forced out of his community. Or, if he tries to stay, he could be bankrupted by litigation costs. As more group- and hospital-based doctors try to set up their own practices, noncompete clauses are being waved in more faces than ever before.

The good news is that, although the legal verbiage in these clauses may sound intimidating to the layman, courts don't always enforce them. If the clause effectively prevents a doctor from earning a living practicing his specialty, there's a good chance a court won't uphold it. "Approximately half of the employees who litigate against a noncompete clause can ultimately escape it," says Carl J. Khalil, a Virginia Beach, VA, attorney with a flair for promotion and a unique Web page called www.breakyournoncompete.com .

The site, illustrated with hands breaking out of handcuffs, offers physicians and other employees several legal strategies to help them fight back. Khalil started the site because he was disturbed by the increasing volume of news reports about people being trapped in jobs they wanted to escape.

"I remember one case that involved a medical technologist who was fired from her job at a laser eye treatment center. When she went to work for another facility, her former employer sued her and her new employer, who then also fired her. It was so vindictive. This tech didn't have any trade secrets, and it makes no sense that patients would follow a medical tech from one office to the next," he says. "But employers can play hardball, and people can go broke fighting for their freedom."

It's this power imbalance between employer and employee that makes courts look askance, says Khalil. Still, many clauses are enforced, he adds. Or else their very existence intimidates doctors, preventing them from even trying to compete with their employers.

That's why the smartest strategy is to try to negotiate the terms of the noncompete clause before you ever sign your employment contract. Doing so, says Khalil, is a lot cheaper and less stressful than facing litigation down the road. One alternative that's often acceptable: limiting the clause to a prohibition against soliciting the practice's patients.

But if your noncompete clause is already in place and you're feeling stuck, take heart. A court may strike down the clause if it fits any of the situations described below. But, remember, laws vary significantly from state to state, so these examples are intended as a general guide only.

The restrictions are too broad

A typical noncompete clause might say that the departing doctor can't engage in the same specialty within 20 miles of his employer for a year, or perhaps two. Depending on the locale, a restriction like this may be considered reasonable, but when the clause tries to prohibit competition for too long, in too large an area, and by forbidding too many activities, chances are a court will refuse to up-hold it.

Thus, a geographic limitation that goes far beyond the office where the doctor spends most of his time will usually be suspect. Say a practice has four satellite offices spread out over a large area. Although the physician works at one of the offices only, the agreement would stop him from competing within 20 miles of any of them. That's likely to be struck down.

So are overly severe restrictions on how a doctor works within his specialty. It might be fine to prevent a physician from performing certain procedures for a time, but an employer can't stop him from engaging in other avenues of medicine.

But there are no set rules, and each court will have to decide what's reasonable. Mileage requirements can vary. For instance, 20 miles may be reasonable in a rural location, but not in a large city. There, a departing doctor could be cut off from more than 1 million potential patients.

The practice waived its rights

Courts have held that there's a need for evenhanded treatment. So if an employer previously declined to enforce a noncompete against other employees who had left the practice, a court will be reluctant to let the practice start with you.

"It would be inequitable to permit the employer to now rely on a noncompete which it has so blithely ignored in the past," one court held. "If someone sleeps on his rights in the past, courts have held that he's effectively waived his rights," says Khalil.

You were fired without cause

If you were terminated, but not because of any wrongdoing on your part, many courts will refuse to enforce a noncompete clause. In several states, this is a matter of law. "The employer who fires an employee for failing to perform in a manner that promotes the employer's business interests deems the employee worthless," one court ruled. " . . . The employee's worth to the corporation is presumably insignificant. . . . It is unreasonable as a matter of law to permit the employer to retain unfettered control over that which it has effectively discarded as worthless to its legitimate business interests."

The employer has "unclean hands"

Have you ever been directed to engage in illegal or unethical conduct, such as insurance fraud, billing overcharges, or violations of state and federal regulations? If so, the noncompete clause could be abrogated as a matter of public policy.

"The reasoning here is that society wants to make it easier for employees to leave a place where they're being asked to do something illegal," says Khalil. "That way, it's more difficult for the practice to continue to engage in illegal activities."

Reminding your employer that you're aware of the illegal activity would probably prevent the practice from even trying to enforce a noncompete. "The practice doesn't want these unseemly facts to be uncovered. So a doctor who wants to leave under this circumstance has some strong cards to play."

The community would suffer

With this defense, a physician shows that patients would suffer particular harm if a covenant not to compete were enforced. In one case involving an orthopedic surgeon, a court refused to uphold the noncompete because doing so would have forced patients to travel great distances to receive care.

"The public interest in retaining the services of the specialist is greater than the interest in protecting the integrity of the contract," one court ruled. If you're the only physician in the area who does certain procedures, you've got a good chance of overturning a noncompete. "We've seen this ruling in a wide variety of specialties, including internal medicine, neonatology, and pulmonary medicine," says Khalil.

The employer reneged

Let's say you've been promised a certain level of compensation, a bonus, or a buy-in arrangement, but your employer weasels out. Or perhaps the group misrepresented your call schedule or the types of procedures you'd be doing. Courts will often decline to enforce a noncompete in this situation, says Khalil. It's a hard sell for an employer to demand enforcement of a contract or agreement he's already violated.

Job tenure was too brief

Some courts have declined to uphold a noncompete clause when the employee left the practice after a short period. "If the doctor had worked at a practice for just a few months, it's unlikely that he'd develop the kind of bond with patients that would make them want to jump ship and follow him to a new practice," says Khalil.

It's difficult for a group to claim that it had an interest in the departing doctor's practice if he doesn't have a long list of patients, doesn't know the internal workings of the group, and wasn't privy to inside information.

If none of these strategies for getting out of a noncompete clause apply in your situation, try to beat your employer to the punch by asking a judge to issue an advisory ruling.

Here's how Khalil sees the scenario: "A doctor would say to the judge, 'I'm looking to take another job, but I think it might technically violate my noncompete. I think the agreement is invalid, and here's why. Please rule and let me know before I take the job or incur the expense of starting a new practice.'"

Although this tactic isn't common, seeking a declaratory judgment can avoid risk and uncertainty down the road.

 

Mark Crane. 8 ways to escape your employer. Medical Economics 2002;4:88.