Non-Competition Agreements for Dentists
Non-competition agreements in the medical field now undergo a great deal more scrutiny in Massachusetts in the past several years, to the point where there is now a statutory prohibition against non-competition agreements for medical practices. However, the same prohibition does not exist for dental practices, and thus there are enforceable non-competition agreements or clauses that can be written into either employment agreements or dental practice sales agreements. The statute prohibiting such clauses among physicians was enacted to allow patients to continue to go to their physician of choice, wherever he or she may practice, but this doesn’t apply to dentists.
Generally, a non-competition agreement must be written because it is necessary to protect a legitimate business interest, is limited in time and geographic scope, and does not conflict with the public interest. There is a legitimate business interest for a dentist who purchases a practice or employs a dentist to ensure that a dentist having previously practicing at that location doesn’t take with him or her patients that normally visit that practice. Particularly if there is consideration, such as money exchanged for a practice or continued employment offered in exchange for the agreement at the time it was made, the clause is considered a reasonable business transaction.
Reasonableness in time and geographic scope is the most important consideration a court makes in deciding whether a non-competition agreement is enforceable. Two years is usually considered reasonable for a limit on the how long the non-competition agreement can stay in force, but a five year period may be considered unreasonable.
The limits on geographic scope where a dentist cannot compete with a former employer or previous owner are different depending on the area where the practice is located. In an urban area, where a number of dentists are competing in a smaller area geographically, then the area might be more narrow, such as five miles. Larger distances can be in enforceable non-competition agreements in more rural areas, where there are fewer potential patients per square mile, and 25 miles might be considered reasonable. In the latest Massachusetts decision on non-competition agreements a Plymouth County Superior Court judge ruled in Zona Corp. v. McKinnon in 2011 that a provision prohibiting competition in named surrounding communities was enforceable, and a hair stylist was prohibited from soliciting the same customers as her former employer two miles away.
Protection of “good will” which is transferred through bargaining for continued employment or purchasing a practice is a major consideration in allowing non-competition agreements to be enforced in general. Since good will between dental practices and its patients makes up a good percentage of the value of a dental practice, this is considered an important protection in the dental field. Courts have enforced an injunction against someone violating a non-competition agreement, saying that it meets the standard of a showing of “irreparable harm.” This was the opinion of the Zona court judge, who reasoned that the loss of good will is even more than just economic loss, because once it is lost it can never be recovered.
The final question in enforceability of clauses in non-competition agreements is how much the parties can specify as liquidated damages which would be awarded if there was a violation of the agreement. The amount must be a “reasonable forecast of damages.” Attorneys’ fees required to enforce the provision, obtain injunctions, etc. can be calculated into this amount.
The public interest in allowing a dental patient to retain his or her own dentist is apparently not sufficient to prevent these agreements in the dental field, unlike among Massachusetts physicians where this interest is protected by statute. Since a court or statute could always extend this protection to dental patients and their personal dentists, it is wise to rely on an attorney’s advice when considering signing a non-competition agreement to see what the latest court cases or legislative actions are saying with regard to what is a “reasonable” non-competition agreement.