Veterinary Noncompete Agreements: Know the Law

Non-competition agreements for owners, buyers, sellers, and employees of veterinary practices are complicated. Drafting noncompete clauses so they are enforceable takes time, knowledge, and patience, because of the state-by-state—and even practice-by-practice—variations, but having all the correct information can help prevent expensive litigation.

Basically, a noncompete clause is the section of an agreement that restrains practice members from competing with that practice after they leave. The restraints typically include a geographic area and a time period. Occasionally, the restraint might be client-specific or preclude a particular area in the practice of veterinary medicine. Either way, there will still be a time restraint.

The 2 keys to preparing a noncompete agreement are knowledge of your state’s laws and engaging an attorney who is experienced in noncompete agreements, preferably with knowledge of veterinary practices. It is seldom wise to only get advice from a family member or friend, even one who happens to be a lawyer.

Variations in State Law

First, knowledge about your particular state’s laws is critical because laws regarding non-compete agreements not only vary from state to state but also differ depending on the type of transaction. For example, laws may differ for employment agreements, practice sales, practice type (ie, large or small animal practice), and the specific facts of the situation. Terms that are enforceable in one state may be unenforceable in another—in five states, non-compete agreements themselves are not enforceable. (For information on a particular state’s law, consult with an attorney who is knowledgeable about these laws, or call the state’s Bar Association Lawyer Referral Service.)

Depending on the state, non-compete agreements may be declared:

• Invalid and not enforceable overall

• Not enforceable because they pertain only to professionals but are otherwise permissible

• Enforceable in connection with the sale of a practice

• Enforceable unless the terms include territory that is too extensive or cover a time period that is too long (eg, restraining an employee from working anywhere in the state and/or not working for a period of time way in excess for how long they were employee,)

• Enforceable, despite the territory or duration, after the court reduces the restraints to a more reasonable area or time period.

States that do permit noncompete agreements require that they be in writing and signed by both parties. If the language in the agreement is unclear, ambiguous, or open to question, a court may decide that the agreement cannot be enforced or may rule against the employer in favor of the employee. Courts may read the agreement against the employer because such restraints impair or restrict an employee’s ability to earn an income. For a practice sale situation, the courts will carefully read the restriction but may not as strictly as in an employment situation.

If the court does find that the language is clear, then it will determine whether the restriction is:

• Reasonably necessary to protect the owner’s business interests

• Unreasonably restrictive of the employee’s right to earn an income and practice his or her occupation

• Prejudicial to the public interest (eg, when 2 Kansas City-area physicians with a specific area of expertise who practiced together split up, the courts refused to enforce a non-compete against the physician who left the practice, because no other physicians in the area provided the same services. To restrain him from practice would have hurt the general public because only one physician would provide that particular medical service.¹)

To give one example of a confusing state law, in Alabama, a law governing noncompete agreements purports to bar contracts that restrain anyone from “exercising a lawful profession, trade, or business.” The statute creates an exception for employment and sale-of-business noncompete agreements, but does not mention the term “professionals.” Accordingly, Alabama courts have read the two provisions together as “barring non-competes for professionals in the sale-of-business,” which would affect veterinarians.²

Variations by Practice

In states that do allow noncompete agreements, the restraints will vary according to the type of practice. Courts typically would not uphold a 100-mile restraint for a small animal, urban practice, but they likely would uphold such a restraint for a large animal, rural practice. However, although the courts look at what is fair and reasonable, opinion will vary, even among judges in the same jurisdiction.

Non-Compete Constraints

Generally, noncompete constraints prohibit the veterinary owner or a team member (generally associate veterinarians and practice managers) from selling or leaving one practice to work for another practice within a certain time period or geographical area. Some agreements further restrain a former team member from providing services to clients even outside the excluded area.

Often when a new team member joins a practice, the owner and the new practice member sign a noncompete provision as part of the employment agreement, typically for one year, and then forget about it until that team member decides to leave to establish his or her own practice, for example, or that member’s employment is terminated. Then both parties revisit the non-compete agreement and its constraints of time and distance that will affect the person leaving. If the matter ends up in court, the question becomes whether the agreement expired at the end of the first year of employment or whether the non-compete agreement is in effect throughout the departing team member’s term of employment.

Another area of veterinary noncompete agreements that can cause problems is the definition of the “practice of veterinary medicine.” Such a definition should always be included in a noncompete agreement; it is best to use the definition adopted by the state where the practice is located.

Each state veterinary board’s website should include that state’s veterinary practice act and its legal definition of the “practice of veterinary medicine.”

For all these reasons, any veterinary owner, seller, buyer, or team member would be well-served by first consulting an attorney before presenting or signing a noncompete agreement.  Not only will the appropriate attorney be familiar with the relevant laws to ensure that the noncompete is necessary and/or enforceable, his or her expertise will likely save a veterinary professional considerable expense, time, worry, and business disruption, and, most important, help avoid the extra costs and burden of litigation.