Alternatives to restrictive covenants

March 18, 2005

My state doesn't enforce restrictive covenants. What can I do to make sure the young physician who will soon be joining me won't leave and set up shop across the street?

Q: My state doesn't enforce restrictive covenants. What can I do to make sure the young physician who will soon be joining me won't leave and set up shop across the street?

A: If your state allows it, you may establish liquidated damages-a sum the new physician would have to pay you if he left the practice. The amount should be enough to compensate you for helping him get established. But it shouldn't be so large that he'd feel compelled to stay in a situation that's not working out, or to challenge the agreement in court.

Another way to prevent an ex-employee from opening a competing practice might be to include a clause in his employment contract that reduces or eliminates payouts he'd otherwise be entitled to for accounts receivable, goodwill, and other assets. You could also include a nonsolicitation clause that covers patients, employees, and managed care contracts.