Interesting non-compete news out of Weymouth, Massachusetts (a small city about twenty miles south of Boston). Back in September 2009, a Boston-area dentist Gerald Maher sold his practice to a newly formed company called Dental Wellness. As part of the transaction, Maher agreed (1) to refrain from practicing dentistry within a 15-mile radius of Dental Wellness (2) and not to solicit Dental Wellness patients (3) for a period of three years.
There is a small wrinkle here: Also as part of the sale, Maher entered a separate employment agreement with Dental Wellness. This is a textbook play by the buyers, which I will explain later. Per the terms of his non-compete agreement, the 3-year clock does not start running until Maher “permanently discontinues practicing dentistry with [the Dental Wellness office].” You can see where this is going. The lawsuit was filed on September 17, 2012— three years since the sale took place. The clock should have run already under normal circumstances. But, I can almost guarantee that Maher remained an “employee” of Dental Wellness for months or even years. This is all just background. Now, for the merits:
Dental Wellness is suing Maher, the new practice that he joined and the dentists at that new practice. They are seeking an injunction that would prevent Maher from practicing dentistry on any former patients of his old practice. There are a few considerations here.
First, we are dealing with the sale of a business. Even in states that generally disfavor non-compete agreements, such agreements executed in connection with the sale of a business are given more lenient treatment.
Second, and perhaps most significant, is the issue of restricting consumer access to doctors, dentists and medical professionals. A number of states hold that physician non-competes agreements are void as against public policy. This includes Delaware, Alabama, Tennessee and – yes – Massachusetts. The Massachusetts statute, however, is expressly limited to physicians proper, not dentists. Still, one might question the wisdom of allowing non-compete agreements in the realm of medical professionals, generally—whether dealing with doctors, nurses, dentists, veterinarians, etc.
Third, Dental Wellness is not only seeking to prevent solicitation, but also seeking to prevent Maher from seeing any of his old patients, period. Yes, I understand that non-compete agreements – particularly in the sale of a business – can be used to protect customer relationships and business goodwill. That said, there must be limits. Those limits – at least in states like MA and FL – come in the form of legitimate business interests. And here, in my view, there are none. If a patient tries Dental Wellness, is unhappy there and seeks out the old dentist, Dr. Maher, at his new practice, that suggests there is no customer relationship with Dental Wellness and no customer goodwill. In short, no legitimate business interest and therefore no enforceable non-compete agreement. The problem here – for Maher – is that he did not wait for the patients to come to him. Instead, he decided to solicit his former patients to leave Dental Wellness and come to his new practice. This was a mistake. If the patients came without solicitation, he is on strong footing (because it proves the lack of a customer relationship / customer goodwill). But if he had to solicit them to get them to jump ship, that’s a problem. That clearly implicates a protectable interest (the customer relationship—because the customer was still at Dental Wellness until Maher interfered). That fact alone is virtually dispositive: Dental Wellness will win some sort of an injunction. And soliciting clients like this never helps with the optics.
Three years have elapsed since the sale of the original practice and – if the clock ran as usual – the non-compete would have expired. But that obviously did not happen. Instead, Dental Wellness likely put Maher on the payroll in connection with some sort of equity buyout arrangement or deferred compensation plan. The result: Maher technically remains an employee of Dental Wellness for months or years, allowing them to stretch out the duration of the non-compete agreement.
So, Maher sold his practice and probably was paid handsomely for it. He then joined a new practice. The delayed equity buyout to extend the non-compete probably would have played in his favor. It could have been used to demonstrate an attempt by the plaintiffs to extend the non-compete agreement to an unreasonable duration. Maher might have won. But instead, he solicited customers. And that is one of the quickest and easiest ways to lose a non-compete case.