Dallas Non-compete Lawyer : Non-compete Agreements Texas : Non-compete Contract

What happens when an employer gives an employee stock in exchange for a non-compete agreement, but the non-compete agreement is held to be unenforceable.  Does the employee still get to keep the stock?  This question was raised in a case in which the employer gave a ten percent ownership interest in the company to one of its employees.  The employer prepared a stock certificate in the employee’s name, but it retained possession of the stock certificate. 

Approximately four years after executing the agreement, the employee left the employer and took a job with a competing company.  The employer claimed that because the employee breached the non-compete agreement, he was not entitled to the stock.  The employee filed suit seeking a declaratory judgment that the stock issued in his name should be delivered to him.

The trial court ruled that the noncompete agreement amounted to an unenforceable restraint of trade and awarded the employee the stock.  The court of appeals agreed that the noncompete agreement was unenforceable, because it was unlimited as to time and extended to customers with whom the employee had no association with while working for the employer. 

However, the court also held that the employee should not receive the stock. In reaching this conclusion, the court considered whether the promise not to compete and the promise of stock were mutually dependent promises.  That is, but for the employee’s promise not to compete, the employer would not have promised to give him stock.  Because the employer did not get what it bargained for (i.e., the employee’s noncompetition), the employee was not entitled to the consideration promised by the employer (i.e., the stock).  Therefore, the employee was allowed to work for the new employer, but he lost the stock. 

As we can see from this case, an employee who challenges the enforceability of a non-compete agreement may, if he or she prevails, forfeit the consideration (in this case, stock) that was given for the non-compete.

John R. Ray & Sons, Inc. v. Stroman, 923 S.W.2d 80 (Tex. App.—Houston [14^th Dist.] 1996, writ denied).

 www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Texas noncompete agreements routinely contain a provision prohibiting an employee from soliciting, or doing business with, her employer’s customers (except on her employer’s behalf).  Not infrequently, these provisions preclude the employee from soliciting any of her employer’s customers.  However, some Texas cases have held that such provisions are too broad.

Several Texas cases have held that nonsolicitation provisions should only apply to the customers with whom the employee in question actually worked while she worked for the employer.  Thus, a provision keeping the employee from working with “all” of the employer’s customers might be too broad.  Other cases have held that nonsolicitation provisions should not prohibit an employee from contacting customers he had before he became employed by the employer.

In addition, Texas courts have held that nonsolicitation provisions must meet the same rigorous standards applicable to noncompete agreements.  That is, they must me “ancillary to an otherwise enforceable agreement” and reasonable in scope.  Conversely, nondisclosure agreements, which do not constitute restraints upon trade, are not analyzed in the same way as noncompete agreements.

OBSERVATION:

Just as Texas courts are hostile to noncompete agreements that are overly broad, they also frown on nonsolicitation agreements that are too broad.  Whenever an employer attempts to prevent one of its former employees from soliciting or doing business with one of the employer’s customers, the provision must be examined to ensure that it is reasonable in scope.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Assuming a non-compete agreement in Texas is worded properly and supported by adequate consideration, the next question is whether the restrictions contained in the agreement are reasonable.  Texas courts have routinely held that the scope of the restrictions should bear some relationship to the activities that the employee performed for his former employer.  For example, if an employee performs work for his employer only in the Dallas/Fort Worth area, a non-compete agreement that keeps him from competing with his employer anywhere in the State of Texas might be too broad.  The facts of each case must be assessed on their own merits, obviously.  However, in considering whether a particular noncompete agreement is reasonable, Texas courts have consistently focused upon where an employee performed his job duties for the employer.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For a non-compete agreement to be enforceable in Texas, the consideration given by the employer to the employee must “give rise” to its interest in restraining competition.  In other words, the employer should be able to go into court and say, “Because we gave our former employee x, he should be precluded from competing against us.”  Over the years, employers have tried to justify non-compete agreements based upon many different forms of consideration—e.g., providing the employee with a term of employment, or stock options, or severance, etc.

However, the only type of consideration that Texas courts have consistently believed sufficient to justify non-compete agreements in the employment context has been the employer’s providing of confidential information to the employee.  Texas courts have believed the employer’s argument—“We gave him confidential information; thus, he shouldn’t be allowed to compete with us”—to be convincing.

However, in the Sheshunoff case, the Texas Supreme Court warned against “overly technical disputes” involving noncompete agreements.  The court warned that lower courts should not get bogged down in questions about “the amount of information an employee has received, its importance, its true degree of confidentiality, and the time period over which it is received.”

This warning arguably reflects the court’s growing impatience with disputes involving non-compete agreements.  Prior to Sheshunoff, the striking down of noncompete covenants, on what some people might refer to as “technical” grounds, was fairly routine.  The supreme court may be signaling its desire for a simpler test to determine whether noncompete agreements are enforceable in Texas.

However, this warning has not kept some Texas courts from continuing to insist that non-compete covenants be supported by adequate consideration.   For example, in a recent Dallas Court of Appeals case, the court held:

Sheshunoff did not purport to replace the requirement that there be consideration for a non-compete agreement. Instead, the sufficiency of the consideration may become part of the reasonableness test after the court first determines there was some consideration.

OBSERVATION:

The Texas Supreme Court’s warning against “overly technical disputes” must be squared with the requirement that the employer’s consideration must “give rise” to its interest in restraining competition.  One potential way of harmonizing these competing concerns is to consider the true confidentiality of the information provided by the employer at the “scope” stage if the analysis.  In other words, an employee bound by a non-compete agreement could challenge whether the alleged confidential information conveyed by the employer truly justifies the restrictive covenant in question.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Texas non-compete agreements can be enforceable in the context of at-will employment.  However, if the only promise made by the employer in the agreement is to hire the employee on at at-will basis, the agreement will fail for lack of consideration.  With few exceptions, for a non-compete agreement to be enforceable in Texas, the agreement must contain either an express or implied promise by the employer to provide confidential information to the employee.  Also, the agreement should contain a return promise by the employee not to use or disclose the employer’s confidential information.  These promises can create a binding non-compete agreement in Texas even in the context of at-will employment.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For several years in Texas, non-compete agreements that arose in the context of at-will employment were invalidated by Texas courts because there was a gap in time between when the employee signed the non-compete agreement and when he received the consideration (i.e., confidential information) from the employer.  Texas courts reasoned that since the employer theoretically could have terminated the employee between the time he signed the agreement and the time when the employer conveyed the information, the employer’s promise to provide the information was “illusory” (meaningless) when it was made.  Thus, even if the employer did in fact provide confidential information to the employee, the non-compete agreement would be held to be unenforceable.

This changed when, in 2006, the Texas Supreme Court handed down its opinion in the Alex Sheshunoff case.  In that case, the court held that a “unilateral contract formed when the employer performs a promise that was illusory when made can satisfy the requirements of the Act.”  Thus, in a situation in which (a) an employee was employed “at will”; (b) the non-compete agreement contained a promise by the employer to provide confidential information to the employee; and (c) the employer provided confidential information to the employee, the agreement would become enforceable at the time the confidential information was conveyed.

OBSERVATION:

Sheshunoff was a critically important decision, because it made enforceable many non-compete agreements that otherwise would have been unenforceable (i.e., those in which the at-will employee was provided with confidential information sometime after he signed the agreement).  After Sheshunoff, the key inquiry is whether the employee actually received confidential information from the employer. If he did, the non-compete agreement may be enforceable.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

To be enforceable in Texas, non-compete agreements must be supported by adequate consideration.  In the employment context, the only kind of consideration that the courts have consistently held to be adequate is the employer’s providing of confidential information to the employee.  This is not to say that financial consideration—such as the providing of company stock—can never be sufficient.  However, generally speaking, for a non-compete agreement to be enforceable in the employment context, the employer must provide confidential information to the employee.  This has been the case in Texas for many years.

Until last year, it had also been true in Texas that a non-compete agreement, to be enforceable, had to be worded in a certain way.  Specifically, the agreement had to contain an affirmative promise by the employer to provide confidential information to the employee.  Thus, in some cases, Texas courts held that covenants not to compete were unenforceable because they did not contain a promise by the employer to provide confidential information to the employee (and this was so even if the employee did, in fact, receive confidential information from the employer).

This all changed last year.  In April 2009, in the Mann Frankfort case, the Texas Supreme Court held that a non-compete agreement could be enforceable even if it did not contain an explicit promise by the employer to provide confidential information.  The court held that, in some situations, the employer’s promise to provide confidential information could be “implied.”  The court noted:  “When the nature of the work the employee is hired to perform requires confidential information to be provided for the work to be performed by the employee, the employer impliedly promises confidential information will be provided.”

OBSERVATION:

The effect of the Mann Frankfort decision was to make enforceable many non-compete agreements in Texas that otherwise would have been unenforceable.  Now, in some circumstances, a court will see in a non-compete agreement an implied promise to provide confidential information, even though the agreement does not contain an express promise.  The key inquiry is whether the employee’s job duties are such that the conveying of confidential information would be required.  If the answer is yes, and if confidential information is in fact imparted to the employee, then the agreement may be enforceable.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 “Texas is a right to work state--non-compete agreements are unenforceable here.”

You’ve heard that 100 times, right?  I know I have.

And it is dead wrong.  The fact that Texas is a “right to work” state means that Texas employees can’t be forced to join a union.  It has nothing to do with whether non-compete agreements are enforceable.

In fact, non-compete agreements are enforceable in Texas if they are (a) supported by adequate consideration and (b) reasonable in scope.  These concepts are discussed in this blog.

So, the next time someone guarantees you that your non-compete agreement is unenforceable because “Texas is a right to work state,” don’t believe them!

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A recurring issue in Texas law is whether financial compensation can constitute sufficient consideration for a non-compete agreement.  This issue came up recently in a case from the Dallas Court of Appeals.

In that case, a company that provided insurance brokerage services granted some stock options to one of its managing directors.  The options were conveyed in an Employee Incentive and Stock Award Plan.  However, before exercising the options, the employee had to sign a non-compete agreement.

After the employee exercised his stock options, he terminated his employment.  Shortly thereafter, he began working for a competitor, at which point a lawsuit was filed to enforce the non-compete agreement.

The trial court held that the non-compete agreement was unenforceable, and the court of appeals affirmed. In doing so, the court explained, “The most common types of consideration given in return for a covenant not to compete are a company’s trade secrets or other confidential information.  A company’s goodwill is dependent, in part, in keeping such information confidential.  Financial benefits, on the other hand, do not give rise to an interest worthy of protection.”

The company contended that offering stock options to a valuable employee also gave rise to its interest in protecting its goodwill.  The court of appeals rejected this argument:

Texas requires that the consideration provided by the employer give rise to the company’s interest in restraining competition. . . .

All companies have an interest in retaining good employees. Stock options are frequently utilized in an effort to retain valuable employees. . . . However, the fact that a company’s business goodwill benefits when an employee accepts the offered incentive and continues his employment does not mean that the incentive gives rise to an employer’s interest in restraining the employee from competing. . . .

The court also explained that the “give rise” requirement can be met “only if the consideration given by the company creates the interest in restraining competition.”  Conveying stock options, the court held, could not meet this requirement.

Conclusion:  Several Texas cases have questioned whether financial incentives could serve as the basis for an enforceable non-compete agreement.  Perhaps more than any other case, this case rejects the notion that financial compensation, such as the granting of stock options, can constitute adequate consideration for a non-compete agreement in Texas.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In Texas, non-compete agreements that arise from the sale of a business are relatively more enforceable than those that are contained in an employment agreement.  For example, Texas courts have held that covenants not to compete may be significantly broader in scope if they arise from the sale of a business.  However, as a recent case demonstrates, from the buyer’s point of view, getting an enforceable non-compete agreement can sometimes be more difficult than it appears.

In the case, two men, Sledge and Armour, purchased some oil drilling rigs from a West Texas oil company (Bandera Drilling).  The purchase price was approximately $34 million. 

The purchase agreement was signed by the buyers, Bandera Drilling, and Bandera Drilling’s individual owner (Brazzel).  The agreement contained a covenant not to compete which prohibited both Bandera Drilling and Brazzel from competing with the buyers for five years.

After the agreement was signed, Bandera Drilling’s employees were introduced to Sledge and Armour as the new owners.  Bandera Drilling’s rig hands went to work for Sledge and Armour, and Bandera Drilling transferred some of those employees’ employment files to Sledge and Armour so that the employees could have health insurance.  Moreover, Bandera Drilling’s salesman introduced Sledge and Armour to Bandera Drilling’s customers.

Shortly thereafter, Brazzel began competing with Sledge and Armour in West Texas.  Sledge and Armour filed suit to enforce the non-compete agreement.  The trial court enforced the non-compete agreement (after reforming its geographic scope), but the court of appeals reversed.

On appeal, Brazzel characterized the transaction as a simple of purchase of assets (“the naked purchase of rigs and equipment”).  Brazeel contended that because Sledge and Armour only purchased assets—oil rigs—and not goodwill, the non-compete agreement was not supported by adequate consideration.

In assessing the enforceability of the non-compete agreement, the court believed it significant that, after the purchase agreement was signed by the parties, Bandera Drilling (a) introduced Sledge and Armour to its employees as the new owners, (b) gave Sledge and Armour information from the employees’ personnel files; and (c) introduced Sledge and Armour to Bandera Drilling’s customers.  As the court noted, “These [customer] introductions undercut Bandera Drilling’s future competitiveness in West Texas because they encouraged customers to transition to another drilling company.”  These factors could lead to the conclusion that Sledge and Armour purchased not just oil rigs, but the business as a whole, including the goodwill. Purchase of the goodwill would justify a promise not to compete.

After listing these factors, though, the court concluded that the non-compete covenant was unenforceable.  The court based its decision on the following:

Even though Bandera Drilling did introduce its customers to Sledge and Armour, it was not contractually obligated to do so.  It was also not contractually obligated to facilitate the transition of its employees to Sledge Drilling.  Because the contract did not obligate Bandera Drilling to take such actions, the contract could not be said to have involved the purchase by Sledge and Armour of Bandera Drilling’s goodwill.  Rather, the contract merely involved a sale of assets—oil rigs—and such sale could not justify a non-compete agreement.

The takeaway from this case is that if a buyer wants to have an enforceable non-compete agreement, it needs to purchase the seller’s goodwill, not just his assets.  If I start a restaurant and buy some used tables and bar stools from a competitor, that will not justify a promise by my competitor not to compete.  However, if I buy his entire business, including the goodwill that he has established in the community over several years, that will justify a covenant not to compete.  In this case, the buyers just bought assets, not goodwill, and thus did not have an enforceable non-compete agreement.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

 Texas courts have long held that an employer’s providing of confidential information can constitute sufficient consideration for a non-compete agreement.  But it can be difficult to apply this widely accepted premise, as was demonstrated in a recent case.

In the case, an insurance broker signed an employment agreement in which he acknowledged that he would receive confidential information:

This information (hereinafter referred to as “Confidential Information”) includes, but is not limited to, data relating to AJG and the Corporation’s unique marketing and servicing programs, procedures and techniques; the criteria and formulae used by AJG and the Corporation in pricing its insurance and employee benefits products and claims management, loss control and information management services; the structure and pricing of special insurances packages that AJG and the Corporation have negotiated with various underwriters; lists of prospects compiled by AJG and the Corporation’s management and research staff; the identity, authority and responsibilities of key contacts at AJG and the Corporation accounts, including accounts of the Acquired Business; the composition and organization of accounts’ businesses; the peculiar risks inherent in their operations, highly sensitive details concerning the structure, conditions and extent of their existing insurance coverages; policy expiration dates; premium amounts; commission rates; risk management service arrangements; loss histories; and other data showing the particularized insurance requirements and preferences of the accounts. The Executive recognizes that this Confidential Information constitutes a valuable property of the Corporation, developed over a long period of time and at substantial expense.

As can be seen from this provision, the broker was to receive various types of confidential information: confidential client contact information, pricing information, customer preference information, information concerning the customers’ policies, etc.  The broker contended that much of this information was not confidential, because it could be obtained from public sources.

The company disagreed, and argued that its confidential information (a) took years to acquire; (b) was only shared with the company’s employees and agents on a “need to know” basis; (c) was not “readily ascertainable by competitors”; and (d) gave the company a “valuable competitive advantage in the insurance brokerage industry.”  The company also contended that it spent substantial resources developing and acquiring the information, and that it took reasonable precautions to prevent the disclosure of the confidential information.

The court agreed with the company.  In doing so, it found as persuasive the fact that the company had spent substantial time and resources developing and acquiring the information, it had taken reasonable precautions to prevent disclosure of the information to third parties, the information was not readily available to competitors, and the information gave the company a valuable competitive advantage in the industry.  Based upon these factors, the court held that the confidential information was sufficient to make the non-solicitation agreement enforceable.

Interestingly, the dissenting opinion disagreed that the information was sufficiently confidential.  The dissenting judge explained:

Just because it took GHIS years to acquire and compile information about its customers and it shared this information with employees and agents of GHIS only on a “need to know basis” does not make the information “protectable.” Nor does the fact that the compilation of the information somehow gives GHIS a competitive advantage make the information “protectable.”

The critically important fact remains that GHIS has not demonstrated that the identity of its customers and the information about its customers cannot readily obtained by others outside of GHIS. Nor has GHIS demonstrated that the information about its customers cannot be ascertained simply by inquiry addressed to the customers themselves.

From the majority and dissenting opinions in this case, we can see that different judges can look at the same set of facts and reach completely different conclusions.  For that reason, it is difficult to predict with certainty how a particular dispute involving a non-compete agreement will be decided in court.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In determining whether a non-compete agreement is enforceable, a Texas court will assess whether the consideration given by the employer justifies the non-compete agreement.  Texas courts have held on multiple occasions that an employer’s providing of confidential information is sufficient consideration for a non-compete agreement.

Even without an enforceable non-compete agreement, a Texas employer has legal rights and remedies in the event one of its current or former employees is using or disclosing its “trade secrets.”  Possible claims for such conduct include misappropriation of trade secrets and breach of fiduciary duty.

But what is the relationship between “confidential information,” which is sufficient consideration for a non-compete agreement, and “trade secrets,” which is a tort concept?  Texas case law on this point is not clear.

For example, in a recent appellate case, the court, in examining whether the employer had an “interest worthy of protection” sufficient to justify the non-compete agreement that its former employee had signed, first noted that a “trade secret” may “consist of any formula, pattern, device, or compilation of information that is used in one’s business and which gives one an opportunity to obtain an advantage over competitors who do not know or use it.”  The court noted that certain types of customer information, business plans, etc., could, under appropriate circumstances, constitute trade secrets.

However, the court then seemed to distinguish trade secrets from confidential information, stating that a “covenant not to compete is enforceable not only to protect trade secrets but also to protect proprietary and confidential information.”  Thus, “trade secrets” and ”confidential information,” although often used interchangeably in cases dealing with non-compete agreements, do not seem to be synonymous.  Employers may be able to bind their employees to non-compete agreements by providing information which, though confidential, does not rise to the level of a trade secret.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Not infrequently, non-solicitation agreements that employers require their employees to sign are extremely broad. These provisions often preclude the employee from soliciting all of her former employer’s customers. Sometimes, the provisions also preclude the employee from soliciting her former employer’s potential customers.

A recent case involved the following non-solicitation provision:

Accordingly, the Executive understands and agrees that for a period of two (2) years following the termination of his employment for any reason whatsoever, he will not, directly or indirectly, solicit, place, market, accept, aid, counsel or consult in the renewal, discontinuance or replacement of any insurance (including self-insurance) by, or handle self-insurance programs, insurance claims, risk management services or other insurance administrative or service functions for, any AJG or Corporation account for which he performed any of the foregoing functions during the two-year period immediately preceding such termination. (emphasis supplied)

Unlike a “blanket” non-solicitation provision applying to all of the employer’s customers, this one only prohibited the former employee (an insurance broker) from soliciting and doing business with customers for whom he personally worked during his final two years with his employer. The provision was narrowly tailored to the customers to whom the employer could point and say, “You would have an unfair competitive advantage if you were allowed to work with that customer. Thus, you shouldn’t be allowed to do so.”

The court enforced this provision against the former employee. In doing so, the court noted that many Texas courts have enforced non-solicitation provisions to prevent former employees from taking advantage of their relationships with the particular clients with whom they dealt while working for their former employer. The court explained: “A number of courts have held that a non-compete covenant that is limited to the employee’s clients is a reasonable alternative to a geographical limit.”

Obviously, it would be too simplistic to say that a non-solicitation provision narrowly tailored to the customers serviced by the employee in question is automatically enforceable. Each case must be judged on its own facts, taking into account factors such as the consideration given by the employer in exchange for the promise not to solicit. But some Texas courts have enforced such narrowly-tailored provisions.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A recent appellate case from Houston demonstrates that, in determining whether non-solicitation agreements are enforceable, Texas courts treat them as non-compete agreements.

In the case, an insurance broker was bound by an employment agreement that contained the following provision:

Accordingly, the Executive understands and agrees that for a period of two (2) years following the termination of his employment for any reason whatsoever, he will not, directly or indirectly, solicit, place, market, accept, aid, counsel or consult in the renewal, discontinuance or replacement of any insurance (including self-insurance) by, or handle self-insurance programs, insurance claims, risk management services or other insurance administrative or service functions for, any AJG or Corporation account for which he performed any of the foregoing functions during the two-year period immediately preceding such termination.

The broker left his employer and began working for a competitor. Shortly thereafter, the broker was sued by his former employer.

Obviously, the above provision is broader than a simple non-solicitation provision, because rather than prohibiting mere solicitation, it also prohibits the insurance broker from doing business with his former customers. Given how broad this provision is, the broker is deprived of one of the best arguments that defendants in non-solicitation cases usually have—i.e., “I didn’t solicit the customers—they contacted me!” This provision is so broad that it doesn’t matter who initiated the contact.

The court in this case enforced the above provision against the former employee. In doing so, the court examined the provision just as it would examine a non-compete agreement. That is, the court held the non-solicitation provision to the same rigorous enforcement standards to which it would have held a non-compete agreement. The court required the non-solicitation provision to be “ancillary to an otherwise enforceable agreement.” In other posts, we will explain what that means. 

But the takeaway from this post is this: Non-solicitation provisions are essentially non-compete provisions. Unlike non-disclosure agreements, which are enforceable in most all circumstances because they simply keep employees from doing what they shouldn’t do anyway (i.e., they prohibit use and disclosure of the former employer’s trade secrets), non-solicitation provisions restrain competition. Because they do so, they must be put under the same microscope that is used to assess the enforceability of a non-compete agreement.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In our practice, we see many disputes between doctors and their employers from both sides of the fence.  Quite often these disputes are between practices or institutions and doctors who are just “hitting their stride,” developing loyal patients and looking at their practice options for the future.  At that point, both parties search for the contract they signed and put in a drawer a few years earlier and begin examining its arcane phrases with a scanning electron microscope.

The eventual terms of any agreement between a doctor and his or her employer depend on many factors, including the respective bargaining power of the parties.  We thought it would be helpful for you to have a road map of the terms you are likely to encounter in your first agreement.

Like any document prepared by a lawyer, there is some fine print at the end.  In the meantime, give some thought to these items (which by no means exhaust the important provisions of an employment agreement) before you make your first commitment as an employee:

How Long.   What is the duration – called the “term” –  of the contract?  This is the duration of your employer’s commitment to you, and yours to your employer.   Is it long enough to allow you to establish your practice?  Is it so long that you would be unfairly stuck with a fixed compensation structure while your practice grew?   Does the contract automatically renew at the end of the initial term and keep renewing (usually for a year at a time) unless one side cancels with notice (called an “evergreen clause”) – which can be both good or bad, depending on how the contract handles it?

How Much.   How is your compensation set?  Is it tied to performance?   If so, does the contract fairly allow you some influence on your performance goals and your employer’s support in meeting them?   This tends to be a business term heavily influenced by market factors, but you still need to ensure that your future employer gives you a fair shot to maximize your income. 

Review incentive compensation and bonuses.  When are they paid?  What offsets will the practice take for expenses (such as technicians and nursing staff)?  If you leave before you receive a bonus, are you entitled to a pro rata share of the bonus or incentive compensation?

Out-of-Pocket (or Purse).    You will have a lot of expenses.   Most employers pay or reimburse the basics, but consider some unusual expenses, such as costs associated with providing services at multiple locations, and don’t forget necessary certifications and continuing medical education.  Don’t assume that your employer will pay all expenses of you being a doctor – get it clear up front.

Vacation.   Is there a paid vacation policy?  What if you can't or don't choose to take all your paid vacation?  Will the days roll over to the next year, or can you cash out your unused days?

Sick Leave/Personal Time.    What does your employer provide if you are temporarily disabled due to injury or illness?  Does the agreement define the term "disability”?  If you are disabled, how long will you receive your base compensation?  If you have minimum collection requirements in your contract, can this be adjusted to take into consideration a decrease in productivity due to a temporary disability?

On Call Obligations.   Are your “on call” coverage obligations clearly spelled out?  Is call limited to specified locations?

If Your Contract Doesn't’t Go to Term.   Yes, it happens. That great relationship at the outset of your employment can sour for a multitude of unforeseeable reasons.  What are the conditions permitting either you or your employer to terminate the agreement before the end of its term?   The procedures are critical here.  This is a major source of litigation, as are: 

Noncompetition Agreements.  The hands-down winner in the I-guess-I-need-to-call-a-lawyer sweepstakes is the famous “covenant not to compete” provision, sometimes shortened to “noncompete.”  This is a provision that limits (but does not entirely prohibit) an employee’s ability to work elsewhere after the employment ends or is terminated.  Some doctors are under the misimpression that these provisions are not enforceable in Texas because they are anticompetitive.  Not true.  It is true that there are special conditions imposed upon them in Texas, but if those conditions are met, courts will enforce contract provisions that keep you from practicing within a certain geographical area for a certain period of time after your employment ends.  The good news is that there are ways to limit the effect of such provisions. 

Partnership.    If your employer is a medical practice, consider requiring a commitment on its part to consider you for partnership (or whatever form of ownership the practice uses) after a certain period of time.

Your Patients’ Records.   Your contract may end or your contract may be terminated prematurely.  Either way, if you have your own patients you are going to want their records.   You need to provide for that in the agreement.

The More Things Change.   With federal law and regulation changing rapidly with respect to matters such as recordkeeping, reimbursement, and even compensation itself, employers have begun inserting provisions permitting them to make unilateral changes to the contract to keep it in compliance with law.  Sounds reasonable, but you should have notice of the change and the opportunity for input (or the option to bail out).

Malpractice Insurance.  Yes, your employer will provide it, but it’s more complicated than that – what happens when your employment is over?  This issue is of particular importance with respect to your second employer and something called tail insurance.  Big-dollar item.

Dispute Resolution.  If you have a dispute over the terms of the employment agreement, how will it be resolved?   Frequently (and, in the case of hospitals, almost always) employment agreements provide for mandatory arbitration (that is, the parties cannot go to court; the dispute is heard by a non-judge with no jury).  Does the contract provide that both sides must conduct a face-to-face meeting before initiating legal proceedings?   Is there a provision requiring the loser to pay legal fees, and, if so, which side does it favor?

Two Sides to Every Story. We have focused here on things that the new doctor is going to want. Your employer is going to want some things, too, and it’s going to insist on them:   Getting and keeping your license; maintaining your privileges at hospitals; abiding by the rules and regulations of the practice or institution; complying with legal requirements; and many more.  Still, you want to make sure your employer doesn’t slip in anything unreasonable, or phrases it in such a way that it turns out to be at “gotcha” at some later date.

As noted, this list only hits the highlights. There are many other possible provisions the new employee should carefully heed.

www.felllawfirm.com

• Email This
• Print
• Comments
• Trackbacks
• Share Link