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Non-competes, Non-solicitations, and Medical Spa Employment Contracts

Posted By Administration, Thursday, September 6, 2018

By Alex R. Thiersch, JD, Founder and Director of the American Med Spa Association

Excellent medical spas require a commitment to building an excellent team, and once that team is in place many medical spa owners look to non-compete and non-solicitation clauses to protect their investment in time and training. Conscientious medical spa owners invest a great deal of time, effort and money toward making their employees the best they can be, and these contractual clauses, known as restrictive covenants, can prevent former employees from working for a competing medical spa and taking its clients and/or employees for a certain period of time. Implementing these clauses and enforcing them, however, are two very different things, so medical spa owners and operators must understand what they’re all about before attempting to utilize them.

Non-competition Agreements

A non-competition agreement is a part of a contract that is designed to bar an individual from working for a competing medical spa for a set period of time in a designated geographic area. If employees with non-competition clauses in their contracts choose to leave your medical spa, they would theoretically be subject to legal action if they went to work for another medical spa within the agreed-upon time span and geographic area.

This seems fairly straightforward; however, in reality, non-competition agreements are somewhat difficult to enforce to their fullest extent because American courts tend to be very reluctant to prevent people from working where they want. 

As with many things in this industry, the laws governing these arrangements vary from state to state. California, for example, has essentially established a ban on non-competition agreements. In Illinois, according to Renee Coover, JD, attorney with the law firm ByrdAdatto, “In a 2015 decision, the Third District of the Illinois Appellate Court readily followed and applied a rule established by a ground-breaking 2013 First District Appellate Court ruling. In Prairie Rheumatology Associates, S.C. v. Francis, the court reiterated that continued employment is sufficient consideration for a non-compete only where the employment is for a substantial period of time.  Citing the 2013 Fifield v. Premier Dealer Services, Inc. opinion, the court held that two or more years of continued employment amounts to adequate consideration. This means that the employee must be employed, under the terms of the non-compete agreement, for two years before the non-compete is enforceable against the employee.”

Non-solicitation Agreements

A non-solicitation agreement is a part of a contract that is designed to prevent a former employee from soliciting clients and/or other employees from your practice for a specified amount of time. In the medical spa setting, it’s not unusual for patients to become attached to the nurse practitioners, laser technicians and nurse injectors to whom physicians commonly delegate treatment. 

When one of these people decides to leave a practice, that practice needs to make sure that no effort is made to take said patients along—those are the practice’s patients, not the individual’s. If former employees make any effort to reach out to those patients and entice them to follow the employees to another practice, it is a clear violation of any non-solicitation agreement has been accepted.

Unlike non-competition agreements, non-solicitation agreements are commonly enforced, as courts are consistently willing to punish the misappropriation of a company’s assets—in this case, patients and employees. And with good cause—imagine the financial hit a medical spa could take if nurse injectors or laser techs were simply allowed to take the clients they’ve treated when they leave. However, like with non-compete agreements, you must be sure that any non-solicitation agreement you employ is carefully crafted to best protect your interests. 

Keys to Enforceable Contracts

Simply writing a non-competition or non-solicitation agreement into your employment contracts does not guarantee that they will be enforced when push comes to shove. But if these clauses adhere to the following guidelines, a medical spa’s chances of collecting damages if they are violated improve dramatically.

Adequate Consideration: In order to get something—in this case, protection for your medical spa should an employee leave—you must give something. This is known as adequate consideration, and every contract must include it in order for it to be enforceable. If you include a non-competition or non-solicitation clause in employees’ initial contract when they are hired, it is understood that employment is the consideration they are receiving in return for signing the contract.

“In the employment context, when an employee is at will, meaning he or she can be terminated at any time without cause, the employment itself constitutes adequate consideration,” says Coover. “Similarly, if a new employee signs a non-compete agreement as a condition of employment, the employment itself is also adequate consideration.”

However, if you wish to incorporate one of these restrictive covenants into an existing contract, some states require that you provide your employee with something extra in return for it—typically a pay raise or a promotion These states do not consider continued employment to be adequate consideration. If an employee does not receive something in return for this newly incorporated restriction, it is unlikely that a court will view the contract as enforceable. 

Coover adds, “For continued employment to be adequate to enforce a non-compete agreement on the existing employee, the employment must last a sufficient amount of time. For example, if a new employee signs a non-compete and the employer fires the individual the next day, it would not be fair to restrict the employee from competing for years in the future.”

Legitimate business interests: Courts typically permit the enforcement of restrictive covenants when they are utilized in the protection of confidential information, investment in specialized training and patient/client relationships. Make sure that any restrictive clause you wish to employ addresses these issues in some fashion—reach for anything more and you risk its enforceability.

Reasonableness: A restrictive covenant should not be excessively long in duration or cover a geographic area any larger than need be. Of course, both of these factors are case-specific—if a medical spa is in an urban area with a great deal of nearby competition, for example, it makes sense that the geographic restriction should cover a smaller area than if it were in a small rural community with one other medical spa in a 20-mile radius.

AmSpa members can utilize their annual complimentary compliance consultation with ByrdAdatto for any further questions regarding restrictive covenants in employment contracts.

A Crucial Decision

When delving into the world of restrictive covenants, it’s crucial to make sure that any non-competition or non-solicitation contract provided to employees be legal and binding. After all, a medical spa’s employees and clients are its lifeblood, and need to be protected. If you have existing contracts, make it a point to have a local health care attorney review them for viability. If you don’t have them in place and want to include them in your employment packet, make sure to work with a health care attorney to craft them correctly the first time.

To learn more legal and business best-practices attend a Medical Spa & Aesthetic Boot Camp and be the next med spa success story.

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