By Benjamin C. Larkin, MA, JD, Optimal Practice Transitions, LLC ~ www.optimalpracticetransitions.com
One of the most frequent questions that is posed to us is some variation of, “What is the validity and enforceability of a non-competition in the dental community in Massachusetts?” Most attorneys will say “it depends”. Historically, the law surrounding non-competition agreements in Massachusetts is based on “common law,” meaning those court decisions that have been made and relied on over the years. However, there is relatively new Massachusetts statutory law that addresses non-competition in the case of employer-employee relationships.
Very simply, a non-competition agreement is a promise made, usually by an employee or a practice seller in our dental world, that prohibits that employee or practice seller from engaging in conduct that competes with an employer or practice buyer. A non-competition agreement is often in effect during an employee’s employment and for a period of time thereafter. In the case of a practice sale, the agreement is typically in effect for a period of time following the practice sale. In addition, the non-competition agreement typically covers a scope of area. So, for instance, a non-competition agreement may restrict the employee or practice seller from competing for a period of three (3) years in any location within ten (10) miles of the practice.
The default rule is that non-competition agreements are not allowed or at least frowned upon because they may restrict a party’s ability to earn a living, and because they may restrict access to goods or services. However, in certain situations, and as long as certain criteria are met, non-competition agreements can be both valid and enforceable. Procedurally, a non-competition agreement must be in writing, must be signed by both parties, and the restricted party must have had an opportunity to consult with legal counsel. Substantively, a non-competition agreement must be reasonable in scope of time and distance, necessary to protect a legitimate business interest, and consistent with public policy. Most recently, in certain cases involving employees, there must be “garden leave” language included.
The practice sale situation is simplest. Dentists, dental lenders, and Massachusetts courts have long considered non-competition agreements to be necessary, valid and enforceable by a practice buyer against a practice seller in a practice transition situation. The procedural and substantive criteria must be met, especially the “reasonableness” of the time and scope of the restriction, but most non-competition agreements contain the necessary language to be valid and enforceable.
What about the situation where a practice seller has an associate? The seller should ask themselves – and the buyer should ask themselves – Does that associate have a non-competition agreement? If so, is it assignable to the buyer? The answers to these questions could affect the value of the practice and the transition of the practice.
The employer/employee situation is a bit more complicated. Not only does a non-competition agreement need to meet all the other procedural and substantive criteria set forth above, but now, Massachusetts statute requires “garden leave” language. (See for reference, Mass. St.2018, c. 228, § 21). Garden leave language provides the restricted party, the employee, with partial compensation from the employer during the restricted time of a non-competition agreement. In addition, unless certain extreme criteria are met, the time of non-competition is limited to twelve (12) months, and the geographic distance covered must still be reasonable. Interestingly, the statutory language leaves open the possibility for an employer to protect its interests with a non-solicitation agreement, non-disclosure agreement, or confidentiality agreement. Time will tell whether many of the restrictions now found in a non-competition agreement will be placed in these other types of agreements in the future.
If you are considering selling your dental practice, or if you are considering buying a dental practice, make sure that you have a discussion with your attorney or other professional advisor about the issue on non-competition and how it may affect your transaction and transition.