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June 14, 2016

DVM 360 20160606

WHY IS MY NON-COMPETE SO WORDY?

Every now and again, a veterinarian will submit an employment contract to our office in order to have it reviewed; even though he is pretty sure he understands the terms.  Sometimes its because he sees a phrase someplace in the boilerplate which advises him to have the document reviewed by a professional.  Other times its just to make sure that the pay and benefits match up against what other employers are paying.

But theres another group of doctors who submit their proposed employment agreements for review for the specific reason that while their contract is relatively clear and concise in every other respect, the non-competition paragraphs are long, verbose, complex and steeped in legalese.  Often, I will carry on a telephone consultation with a vet who doesnt even have an issue with the non-compete details themselves, (such as the length of time or the described non-compete region).  These docs just cant make heads or tails of the wordy paragraphs and subparagraphs dedicated to the non-competition topic.

Well, theres a reason why such otherwise clear and concise documents get super-wordy when the reader reaches the section describing the covenant against competition.  The author has used complex language to build a case should the enforcement of the non-compete eventually be litigated or arbitrated.  How does that work and why do drafters perceive this to be necessary?  To understand, its important to know a little about the politics of jurisprudence.

Public Policy.

Most states have laws on the books which provide for either the enforcement of employee non-competition covenants (contractual promises), or they simply have no prohibition against their enforcement (which amounts to about the same thing).  For example, Dr. A signs an employment contract which contains a 3 year, 15 mile non-compete covenant; when Dr. A violates it, most states will allow his employer to sue to try to enforce the limitation.  (Or if the legislature has not spoken otherwise, the suit can go forward.)

Thats the simple view, however.  Practically speaking, courts have enormous leeway in deciding whether to enforce a specific covenant in any individual instance.  Lets take the example above and look at it through the eyes of a typical judge interpreting that covenant according to the standards established by the highest courts in many of the States.

Assume that Dr. A is dragged to court for opening his own shop 12 miles from his old employers clinic.  The state law in the State of Jones is that such suits can be brought to enforce covenants not to compete.  But Dr. As dispute is far from the first case ever to come before courts in Jones.  In one old case, the non-compete covenant went up on appeal and was held invalid.  In its opinion, the Supreme Court of the State of Jones declared that while the courts of this State may enforce such covenants, they must apply a multi-pronged test.  These are the characteristics which a covenant not to compete must have in order for the trial courts of our State to mandate enforcement:

1.  The covenant must be reasonable in terms of period;

2.  The covenant must be reasonable in terms of distance or region;

3.  The covenant must cover only an area from which the complaining business draws its customers.

4.   The covenant must balance the needs of the business to protect itself with the need of the employee to reasonably earn a living in his trade or profession.

Where on Earth did the Supreme Court of Jones come up with this set of interpretive rules for the lower courts?  It made the rules up.  It invented them.  And until the Jones legislature says otherwise, those are the rules which all courts in the State of Jones will have to use in deciding whether or not a given covenant is enforceable. 

But why?  The justices of the highest court of Jones have the duty and power to interpret laws which are on the books in Jones, in an effort to allow their enforcement consistently with public policy.  That means; they say to themselves, if the people wanted to throw out all non-competes, their representatives would have made a law.  on the other hand,  It would be patently unfair for an employer to be able to prevent a veterinarian from ever working for anybody else in the world for the rest of his life.

The Jones Supreme Court, then, is charged with setting guidelines for interpretation which they feel is consistent with public policy.  Public policy means fair, or reasonable, or not unduly harsh or some combination of those things.  So, one case went up to the Supreme Court, that court said that the covenant in that case (35 miles and 1 year) was voidnot reasonable because under the facts of that one case, 35 miles is too far. 

Now, armed with that precedent, the judge in Dr. As case has to apply the reasonableness tests.  She has to figure out whether this particular covenant passes the tests.  Well, Judge Wright, raised as a conservative Republican and lover of business peoples rights, rules that 12 miles is absolutely fine and falls well within a reasonable balance between rights of the clinic to protect its client base and the ability of Dr. A to pursue his career.   In her opinion she opines, This non-compete covenant comports nicely with public policy.

The State of Jones has Other Judges.

Now re-imagine the same trial if the other judge in Dr. As town were assigned to hear the case.  This judge is Judge Clinton, a Bernie Sanders guy, considered liberal by everybody up to and including Ralph Nader.  He hears the facts and doesnt buy the theory that Dr. As old boss has clients driving 12 miles to his practice.  The demographic information supplied as evidence leads him believe that virtually all the clients at the practice live within 3 miles of the place.  Surely public policy demands that this poor, innocent employed vet should be able to work anywhere outside a 3 mile radius.  And so the non-compete is struck down or modified to encompass a smaller distance which is reasonable.

Clearly, reasonable minds differ; even as to what constitutes reasonable.

So How Does This Make for Wordy Covenants?

  Folks who know how to draft legal documents also know what hurdles their work will encounter if those documents validity is challenged.  Therefore, good lawyers anticipate an eventual judicial interpretation of any non-compete they prepare.  They write them to enhance their appearance of reasonableness and to maximize the likelihood that they will fall on the right side of any balancing of public policy objectives which a judge may see fit to apply.

The following are some terms and phrases which are commonly written in to non-competition covenants in an effort to protect them against being voided and rendered unenforceable by a judge who tends to lean toward looking out for employees rights over employers rights in the pursuit of carving out the shape of a reasonable covenant not to compete:

1. Employee agrees that these non-compete limitations are fair  These words attempt to prevent associates from claiming that they didnt understand what they were signing and got bamboozled into agreeing with unreasonable or outrageous non-compete limits.

2. Employee shall have the right, upon termination, to work at any humane society or low-cost spay clinic and to do relief veterinary work up to four days a week as long as such work is not performed at the same practice more than 4 days out of any calendar month.  This helps deflect the potential argument that the non-compete would prevent the associate from earning a living without moving out of town.

3. Any court of competent jurisdiction shall have the right to modify any term of this non-competition clause in order to re-form it to comply with law and make it enforceable.  This is designed to keep the non-compete from being thrown out completely if its original language was overly broad and, as such, contrary to public policy.

4. This non-competition clause shall not become effective until the six month anniversary of the signing of this contract.  This language attempts to avoid the doctrine some courts apply to non-compete covenants called lack of adequate consideration.  The theory is that not only must the time, distance and other tests be met reasonably, but that a clinic has not really developed a protectable interest in prohibiting an associates competition until that associate has spent enough time on the job to present a competitive risk (gotten to know enough clients.) 

These, then, are the considerations which employment contract drafters take into account when crafting a well-considered non-compete.  The language must not only be descriptive of the prohibition to be enforced, but must be designed to provide a strong defense against any and all challenges to enforceability.  And that, doctor, is why your covenant not to compete is so wordy.