By Guest writer Dental Attorney Jonathan Eskow

Whether you are a practice owner, partner, or associate/employee, there is a good chance that a restrictive covenant or non-compete agreement has been part of your practice dynamic. The paradigm of restrictive covenants has left a lot of confusion and differing ideas in the past:

  • Will this covenant hold up in court?
  • What are the consequences of breaking the covenant?
  • What’s the difference between non-compete and non-solicit?
  • Is the covenant stronger because there’s financial consideration built in?
  • How strict is the distance restriction?
  • Does this covenant inhibit a dentist from making a living?

All these questions and more suddenly take on a different and most likely less significant meaning with the recent U.S. Federal Trade Commission ruling banning non-compete clauses. It has the potential of drastically impacting or changing dental practice employment contracts, how Associates are considered and treated, and long-term career and practice planning.

Below are 8 bullet points about the new ruling:

TOP 8 THINGS TO KNOW ABOUT THE FTC BAN ON NON-COMPETITION CLAUSES

  1. The ban will go into effect on September 4, 2024,and applies to non-competition clauses in all employment agreements (whether entered into before or after the ban goes into effect).
  2. The ban does notapply to non-competition clauses that are part of asset or stock purchase agreements. For any dental practice acquisition, the buyer can still enforce non-competition clauses against the seller.
  3. This ban onlyapplies to non-competition clauses and does not apply to all other restrictive covenants (such as non-solicitation, non-interference, non-disclosure and non-disparagement covenants). These other restrictive covenants can and should continue to be used without any restriction, and in fact, will become even more important in employment agreements due to the lack of non-competition clauses.
  4. After the ban goes into effect, employers will be required to provide written notice to those employees with non-competition clauses in their employment agreements stating that such clauses will not be enforced. The FTC provided model language which can be copied and provided to employees with non-competition clauses.
  5. There is an exemption from the ban which applies to “senior executives” who already have non-competition clauses in their employment contracts. An associate dentist would likely notbe considered a “senior executive” for purposes of this exemption.
  6. The final rule was silent on whether non-competes tied to equity ownership in a company are enforceable. This means it may remain possible to enforce a non-competition agreement tied to equity ownership (i.e. a partnership) and you should continue to maintain those provisions in your company governing documents until and unless further clarification from the FTC is provided.
  7. The final rule does not discuss any penalties or enforcement actions for those employers that continue to include non-competes in their agreements. This will likely only be clarified through litigation after the ban goes into effect.
  8. It is anticipated that there will be a significant amount of litigation concerning the FTC’s final rule. At this point, it is unclear whether courts will stay (or postpone) the enforcement of the rule while litigation is pending. You should therefore plan to comply with the rule in its entirety unless advised otherwise.

BOTTOM LINE: Before making or planning a move, it’s advised to seek counsel with a reputable attorney who have both preferably had history with dental practice business and law… and maybe consider some open and collegial dialogue between the two parties to come to an equitable agreement beforehand.

Resources available from the FTC: