What is a Restrictive Covenant?

Most contracts in dentistry include some type of non-compete included in the form of restrictive covenants.

The industry seems to be moving away from this. For now, however, it’s a concept with which the associate must gain familiarity. The restrictive covenant will appear during the onboarding process. It will be located in a specific section of the employment contract or as part of a separate agreement.

Imagine an associate has worked in a practice for a few years and has built a trusting patient base or has cultivated good rapport with the office staff. Maybe they feel that they could be paid more in a different neighborhood or dental office. Maybe they have saved up enough money to start their own dental practice. What the restrictive covenant does is prevent the associate from working somewhere close by, usually for a number of years. The number of years will often depend on how long they’ve been working at the current office. Restrictive covenants are in place so that the associate does not establish loyalty and their patients don’t walk out to a new practice.

In other words, the employer is trying to protect his own practice from the associate who has gained contacts and experience through his employment. The owner has invested time into building a practice. As such, he doesn’t want to create a detrimental situation to his business. When the associate establishes a competing practice, the employer wants that practice to be far from his own.

Depending on the region, a restrictive covenant can vary from a number of blocks to a number of miles.

What is considered “fair” depends on the region. Assume the associate signs a 1-year agreement to work for a company and the contract prohibits work within a 5 mile radius for 2 years after termination. 5 miles in metropolitan New York City is very different from 5 miles in upstate New York. This number is usually negotiable before signing, and the associate should try to negotiate this number as much as possible.

The contract will outline whether the restriction applies to opening up one’s own office versus working as an associate. There may be two different terms for the restriction. The covenant could prohibit a doctor from opening his own office within a 20 block radius for 2 years after termination of employment. It may not prohibit the doctor from working as an associate for someone else.

It’s important to be aware of terms. Depending on the duration of the restriction, the geographic scope, and reason for employment termination, a large mileage restriction would mean a big constraint on an associate’s post-employment opportunities.

Furthermore, if an associate works for dental service organization (DSO), does a restrictive covenant apply to one office or to all offices owned by the DSO? If an associate works at two DSO offices simultaneously, does the restriction apply to both offices? How does that limit the associate’s options after termination? And what if the DSO opens a new office within the associate’s geographic region? The associate should be aware of these provisions and should negotiate these before committing to these limitations.

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