Veterinary Non-Competes: A Legal Update

The veterinary industry has been abuzz about non-compete agreements (NCAs) for some time now. Should they be used? Should they go away? Are they enforceable? This is obviously a controversial topic, and it’s evolving quickly. As attorneys, we can’t advocate for or against NCAs, but we can provide an update so you understand recent legal developments at the state and federal levels.

The Federal Trade Commission’s Proposed Rule to Prohibit NCAs

One such development is the Federal Trade Commission’s (FTC) proposed rule to prohibit NCAs. The proposal was made in response to President Biden’s July 2021 Executive Order, which was intended to prevent NCAs for low-wage earners and to prohibit employers from presenting an NCA before an individual can accept a position or promotion.

Should the FTC’s rule be issued in its current form:

• It would supersede any state statute, regulation, order, or common law standard, prohibiting NCAs—even in states with specific statutory schemes.
• It would prevent employees from having to repay training costs if the individual terminates employment within a certain time period unless the employer can demonstrate that costs incurred by the employee validate the repayment.
• All existing NCAs will become void 180 days following the final publication date.
• Employers will have to provide written or electronic notice to their employees who are under an NCA to ensure they are aware that they can seek employment with their employer’s competitors or launch their own business in competition with their employer.

Since the FTC’s proposed rule is more extensive than the Biden administration’s Executive Order, changes to minimize the scope may be made before the final publication. Regardless, until the proposed rule goes into effect, NCAs remain valid and enforceable in most states and are governed by state law.

Restrictive Covenants: A Crash Course

In veterinary medicine, restrictive covenants have been designed to prevent an associate and/or key personnel from competing with their former practice, soliciting clients, and using confidential information for a reasonable time period after their employment at the practice has ended.

Restrictive covenants include:

• Non-compete agreements — NCAs prevent employees from providing competitive services similar to those offered by their prior employer. For example, an equine practice owner prohibiting a previous associate from joining another equine practice, but not a small animal practice, since small animal medicine doesn’t compete with equine medicine.
• Non-solicitation clauses — These restrictions prevent employees from soliciting clients, referral sources, or other employees away from a practice. Solicitation can include sending direct mail to the previous employer’s client list, circulating print or online advertisements, and encouraging other employees to leave the current practice to work for or with a veterinarian who has left. These restrictions are typically effective for one to two years, regardless of geographic location.
• Non-disclosure covenants — Non-disclosure or confidentiality agreements prevent employees from using or disclosing confidential information such as client lists, fee schedules, marketing strategies, financial information, and trade secrets.
• Non-treat agreements — In states where permissible, non-treat agreements allow an associate to work at a competing practice, but with the restriction that they cannot treat pets belonging to clients of their previous employer. These are typically effective for one to two years.

Is That Restrictive Covenant Enforceable?

To be considered enforceable, restrictive covenants must be signed by both parties, and the language must be clear, unambiguous, and not open to question. In cases of uncertainty, courts often rule in favor of the employee to prevent restricting the employee’s ability to earn income.

If you choose to include restrictive covenants in your employment contracts, or if you are an employee considering signing a contract that includes one or more restrictive covenants, it’s important to know your state’s laws. Some states, including California, North Dakota, Oklahoma, and Washington D.C., have enacted legislation that effectively bans NCAs. And, in other states, they can only be used in particular circumstances.

When In Doubt, Get Legal Advice

When it comes to restrictive covenants, there’s a lot to unpack. The law continues to evolve around this issue, and our team will closely monitor it and provide updates as they arise. If you have questions about restrictive covenants, don’t hesitate to reach out to the National Veterinary Law Group at Mandelbaum Barrett PC.