It was noted in Part 1 of this series that Courts prefer the use of non-solicitation clauses to the use of non-competition clauses. As stated, Courts will engage in the following three-part analysis when tasked with determining the enforceability of non-competition clauses in associate agreements:
- Whether there is a proprietary interest worthy of protection;
- Whether the spatial (geographical) and temporal (time) aspects of the clause are reasonable; and
- Whether, in contrast, a non-solicitation clause would adequately protect the principal’s interests. As was noted, in most cases, this is the factor that defeats the enforceability of an otherwise reasonably drafted non-competition clause.
What is a non-solicitation clause?
Like a non-competition clause, a non-solicitation clause is a restraint on trade. Put simply, the non-solicitation clause prevents a departing associate from soliciting the patients of their former principal. In almost all circumstances, Courts hold this restraint on trade to be “reasonable”, and to be preferable to the more onerous non-competition clause. The conventional thinking is that in permitting the use of non-solicitation clauses, Courts will strike a balance between the principal’s interest in protecting their business interests, and the associate’s right to practice dentistry.
The non-solicitation clause must still be reasonable. A non-solicitation clause that is overly broad, or too far sweeping, will meet the same fate as a non-competition clause that overreaches, being that it will be deemed unenforceable. Non-solicitation clauses must be succinct, and must be properly temporally restrained. It is worth mentioning that Courts do not require geographical constraints on non-solicitation clauses, but only a temporal aspect.
So long as the clause does not attempt to prohibit solicitation for an undue period of time, then it will likely stand up to scrutiny by the Courts. For instance, a non-solicitation clause that attempted to prohibit solicitation for an unspecified term, would almost certainly be struck for being too broad. Similarly, a non-solicitation clause that prohibited solicitation for a period of 10 years would also likely be struck, for reaching too far. A properly drafted non-solicitation clause should define the exact activities of solicitation prohibited, and also the time frame of prohibition. An example would be:
(a) The associate agrees that she shall not, at any time during the term of this agreement, or within 36 months following the termination of this agreement, solicit, invite or encourage in any manner whatsoever, any patients of the practice to seek dental services elsewhere
(b) The associate agrees that she shall not, at any time during the term of this agreement or within 36 months following the termination of this agreement solicit, invite or encourage in any manner whatsoever, any employees, Associates or staff of the practice to work, be employed or retained as independent contractors elsewhere.
The reader will note that this clause prohibits the solicitation of patients, and also the solicitation of employees, staff, and associates. The rationale for prohibiting the solicitation of staff, associates, and employees is that absent such a clause, a departing associate could steal the identity of the practice. Most dentists will know that their support staff are typically the face of the business. Given that competition is allowed (remember, competition by an associate typically cannot be restrained through a non-competition clause), if a departing associate set-up a practice next door, and hired the staff members to come work for him or her, it would create confusion for patients. Hence, the Courts will enforce a clause that attempts to prevent this mischief.
Solicitation, by its very nature, requires an active component. The departing associate must take positive steps towards soliciting the patients in order to run afoul of a non-solicitation clause. For instance, stealing the patient list and sending out direct mailings to the patients on that list would likely constitute solicitation. The dawn of social media has provided new opportunities to covertly solicit. In a recent case we dealt with, the departing associate established a private FaceBook page for the new practice she was starting, and invited a number of the patients of the former principal to be friends. To the associate’s credit, this was one of the more creative solicitation campaigns we have seen.
Patients have the right to choose their treating dentist. If a long-standing associate, who has built solid relationships with patients, leaves and sets up shop across the street, it is highly likely that a number of patients will follow her across the street. This will occur without the departing associate ever taking any active steps to solicit. This is an unfortunate risk, but one that likely cannot be prevented.
This results in a situation where, theoretically, an associate can open a new practice across the street, and wait for patients she has treated to filter in, so long as the patients are doing so of their own volition. Of course, the less time and less involved the associate was in the former principal’s practice, the less chance that patients will follow him or her. Where the associate has been with the practice long enough that patients are willing to leave with him or her, the greater the likelihood that the situation might show “exceptional circumstances”, and a non-competition clause might very well be enforced. Lying somewhere in between is the associate who has been with the practice for a reasonable amount of time, and who a relatively small percentage of patients have an allegiance to. In this situation, the Court will likely rely upon the public policy rationale for allowing competition in the marketplace.
Dilution of Non-solicitation clauses
Previously, it was difficult for a patient to find a departing associate, in the absence of a direct solicitation. Patients would have to call the RCDSO, or look through the Yellow Pages and hope the associate was listed. In today’s marketplace, it is very easy to find out where a dentist is working through a simple Google search. Patients will not automatically know that an associate dentist has departed. Given that competition is generally allowed, it is not possible to prohibit the former associate from launching their own website. If a patient considers an associate to be their dentist, then the next time they want to book an appointment, all they have to do is type the former associates name into their smart phone, and the new website and office address will appear. Without any active solicitation, the patient has now learned that the associate has a new practice, which is conveniently located right across the street.
Ultimately, if a patient wishes to follow a departing associate dentist, they will find them. This results in a possible dilution of the effectiveness of the non-solicitation clause, as it is much more difficult to protect the existing patient base.
Further, as noted above, with the advent of social media, it is also difficult to police solicitation. Associates who engage in solicitation campaigns have more opportunities to do so covertly.
It is conceivable that the pendulum will start to swing the other way, and we will see more and more cases where Courts are willing to respect the terms of a non-competition clause entered into by the parties. This may prove to be the only way to adequately protect the patient base of a principal. However, there is no indication as of now that the law is headed in that direction, and dentists must be sure to include a properly drafted non-solicitation clause in agreements with associates.
If you wish to have an associate agreement drafted, or have an associate agreement you wish to have reviewed, please contact Matthew Wilton at firstname.lastname@example.org, or Paul Martin at email@example.com, or by phone at 416.860.9889.
*The foregoing is not intended to be legal advice and is provided for educational purposes only. You should retain a lawyer to seek advice prior to taking any legal steps.