Hosts Michael Byrd and Brad Adatto share the story of an orthopedic surgeon who thought he was proactive by avoiding a difficult conversation, only for it to backfire on him. Tune in as we discuss restrictive covenants, the Massachusetts Noncompetition Act (MNCA), and the truth about non-compete agreement enforceability.
Listen to the full episode using the player below, or by visiting one of the links below. If you have any questions or would like to learn more, email us at firstname.lastname@example.org.
Intro: [00:00:00] Welcome to Legal 123s with ByrdAdatto. Legal issues simplified through real client stories and real world experiences, creating simplicity in 3, 2, 1.
Brad: Welcome back to another episode of the legal 123s with ByrdAdatto. I’m your host, Brad Adatto, with my co-host Michael Byrd. Michael, we’re going forward with season 11. What’s the theme?
Michael: As a business and healthcare law firm, we meet a lot of interesting people and learn their amazing stories. This season’s theme is hard conversations. We’ll take real client stories and of course, Brad, we’re going to scrub the names to protect confidentiality.
Brad: Good idea.
Michael: We’ll take these stories built around confronting and having hard conversations. They don’t all have great outcomes, but there are plenty of teachable moments.
Brad: Well, before we dive into opening up the season 11, Michael, I want to ask you a question. Have you heard of the HBO series, from Earth to the Moon?
Michael: No. [00:01:00] Sounds a little nerdy, Brad.
Brad: All right, fine. What about the Apple TV plus series, for all mankind?
Michael: My context brain is exploding right now because you’ve just said two names, and I don’t know what you’re talking about or why you’re talking about it, so please share. I think you knew I wouldn’t know what you were talking about.
Brad: Well, I’d never know, you’ve watched some shows. Alright, both of these series tell a story of United States Space Program from the beginning in 1961 and going towards the moon. The Earth to the Moon series focused on real events from 1961 all the way to the Final Moon mission in 1972. It was really well written, really well acted. Tom Hanks was one of the executive producers and he narrated the beginning of every single segment. Lots of fun watching to my kids, they all loved it. For all mankind starts off with Americans who are unable to actually land on the moon first, and Russia gets there [00:02:00] first on the moon, and it basically has this weird timeline where all of a sudden now there’s this space race of trying to gobble up the moon, and Russia versus America on the moon. It’s a really interesting story because it’s what would happen if the Russians got there first.
Michael: Yeah, I think I actually, as you were talking about, I’ve heard of that, Isn’t there this play out of the next many years of what would’ve happened?
Michael: I’m guessing it’s not good for us as Americans.
Brad: Well, I don’t want to spoil it.
Michael: Oh, okay. Maybe it is, I don’t know. Maybe there’s something to celebrate there. I don’t know, but I have a feeling it’s not good. Anyway, so what does this, moon talk have to do with today?
Brad: Well, so it appears we, real time America, is heading back to the moon again on November 16th for those who aren’t paying attention, who aren’t a little NASA nerds like me. NASA launched another uncured spaceship, [00:03:00] Artemis one, or Orion from Florida to the moon, and it launched on the most powerful rocket ever, which is on a space launch system mega rocket. For those who don’t know, apparently a mega rocket is more powerful than a regular rocket. I just love the fact that they call it a mega rocket. This mission is kicking off nearly a month long journey from earth to the moon, and if everything shakes out well, Orion is going to capture a whole bunch of good data points and milestones that we’re heading back towards the moon.
Michael: Wow, I feel like we need to cue the eagle screeching music in the background.
Brad: Yes, and for those who don’t know, Orion did get to the moon; it rotated around the moon between November 25th and December 1st, headed back to Earth, and after a long burn it arrived back to Earth on December 11th, 2022. Splashing down softly under parachutes about a hundred miles outside of Mexico on the Baja Peninsula.
Michael: Did I see or hear [00:04:00] that Elon is also going to the moon?
Brad: Yes, he actually is, but that’s a privatized one that he is building separately. That might be what we’re about to talk about. this mission that we’re kicking off here is NASA doing it, and what they’re hoping to do is be able to build a research base in the south polar region of the moon where they believe has frozen water, which obviously is something they need for sustaining life there. Next, they have another launch coming up in 2023 in which they’re hoping to have astronauts orbit the moon and then they’ll come back and eventually send man back to the moon. During that same time, this may be where Elon comes in, they’re trying to build a space station that’s going to be orbiting the moon called Gateway, so they’ll have a jumping off point to have astronaut’s dock there at that place and go up and bound.
Michael: So he’s not just doing that to escape the heat from Twitter?
Brad: I don’t know, I can’t answer that question. [00:05:00]
Michael: Well, it sounded really scientific and purposeful with the way you described it. Well, so how does this connect to today’s episode?
Brad: Well, if you watch these series, you’ll know one thing that NASA tries to do is they try to find ways to minimize the risk of their astronauts, which are their greatest assets, before sending them in the space. So much less than if you’re sending someone to the moon and there’s a catastrophic failure, it does not end well generally for those astronauts. Although today’s story has nothing to do with traveling in the moon, it does have to do with understanding ways in which we as attorneys work with our clients, trying to find ways to minimize their risk to help prevent catastrophic failures.
Michael: So you’re basically trying to correlate yourself as an attorney to NASA. Is that what I’m hearing?
Michael: Oh, okay.
Brad: Thank you for finally noticing.
Michael: It seems fair, yes. Today’s story is going to sound, Brad, a lot like last week’s story, so if you have that deja vu feeling, [00:06:00] audience, stick with us because there’s a really important deviation in how it plays out and how the hard conversation moment was handled. We will also explore the legal implications from a slightly different angle than last week and really focus more about non-compete enforcement.
Brad: Yeah, so Michael, today’s story, since we’re scrubbing the names, we will call our client in the story, Dr. Homecoming.
Michael: Well, let me guess that Dr. Homecoming is headed home.
Brad: Oh my God. Michael, you’re crushing it. I think you’re only one for one. It’s probably the best you’ll get all day, but yes, you’re correct. Dr. Homecoming is an orthopedic surgeon who is ready to move back to his hometown, which is an area inside of Long Island. Lived in a small town there. Dr. Homecoming’s wife is also from the Long Island area, and both of their parents were living in Long Island. Dr. Homecoming had a great [00:07:00] offer from a very large multi-specialty group with offices mostly across the New York area but several across the Long Island, and we’ll just call Dr. Homecomings employer, New York Clinic.
Michael: Very original, Brad, with the names. So this hometown plan A does sound a lot like Dr. Roger from last week, and as we discussed last week, the plan A is being able to identify your vision for your career. You know, what are you going to do when you grow up? What does it look like five years from now if your career goes according to plan? And that will help you prioritize your current opportunities. Plan B is what are you going to do if something goes wrong? What’s your contingency plan?
Brad: Okay, I’m glad you’re paying attention since you were part of the podcast last week. Yes, much like last week’s show on Dr. Roger, Dr. [00:08:00] Homecoming hired us on the front end to assist with the analysis of the employment agreement.
Michael: Okay, well, what did you learn?
Brad: It was actually a pretty good contract as it relates to compensation. They were assisting with the moving costs and other benefits that were great for Dr. Homecoming because he was just finishing up his fellowship in Ohio. Generally speaking, the New York Clinic employment was mostly a reasonable agreement.
Michael: Mostly reasonable? Sounds like a subtle issue there, Brad.
Brad: Yes, you hinted about that in the beginning. The non-compete was extremely aggressive. It had a 24 month, 10 mile radius of every clinic, ASC, and hospital that the New York clinic provided medical services. As a reminder, this was a huge group and on Long Island, they had seven office locations and had privileges owed over a dozen hospitals and ASCs.
Michael: Yeah, and this is actually a great example of how you [00:09:00] actually gotta really read a non-compete to see just how expansive it is because just on its surface, if you saw that a non-compete was for two years and 10 mile radius, you would be like, oh, well that’s not that big of a deal, but the fact that this New York clinic covered so much area, and they had the non-compete connected to every single office location, the net impact was massive. If I were the audience, I’d be saying, okay, is this even legal? And, let’s talk a little bit more about that in the second half of the show. Let’s definitely acknowledge that, that’s a lot of locations that would block him from pretty much all of Long Island.
Brad: Yeah, you nailed it, Michael. That’s pretty good. It’s like maybe you are two for two today. Yes, and based on that 10 mile radius, the group basically blocked out the entire length of Long Island with only a few [00:10:00] small fractional areas that were outside of the radius.
Michael: Oh man, I strained my shoulder from patting myself on the back. What happened next?
Brad: Well, we spent a lot of time discussing Dr. Homecomings need to be back at Long Island. We talked about ways to minimize this 10 mile radius and we talked about the pros and cons of this contract and understanding what a huge risk that is and especially light at the fact that he and his wife are basically moving home.
Michael: Yeah, I mean, its part of his plan A.
Michael: The most important part of his plan A, which is a huge deal if you don’t have a plan B that would allow you to carry forward, so tell me more.
Brad: Yeah, so first, we talked about going and having these conversations with the group. Let’s talk about ways to overall just decrease the 10 mile radius to lower that number. We additionally discussed, is there a limiting the actual locations where Dr. Homecoming actually was providing medical service versus [00:11:00] every single place that the New York clinic provided services, and then finally locations where basically he exclusively provided services. So there are a lot of different things that we should start addressing, and I know there are other options they might have too.
Michael: Yeah, I mean, those are great ideas for Dr. Homecoming to prepare him for this hard conversation. Some other things that we’ve done in these types of situations is we’ll try to negotiate a buyout provision so that if there’s a financial penalty or cost, you can buy out of the non-compete or sometimes we’ll be able to negotiate or try to negotiate that the non-compete only applies if the physician leaves without cause. As I said, with this being Dr. Homecoming’s plan a, it really makes sense to press in on this issue, get creative, and really, really make sure that this is one of the issues that [00:12:00] gets addressed.
Michael: One of the only issues that gets addressed, probably. Did Dr. Homecoming have a hard conversation with the NY Clinic to attempt to modify the employment agreement, and if so, how did it go?
Brad: Michael, I don’t know.
Michael: Wait, I’m sorry. Can I go back a season or two and ding you?
Brad: No, no.
Brad: The red flag season says no, that you cannot use the ding button anymore.
Brad: But fair point to ding. Dr. Homecoming thanked me for my thoughts and several days later I randomly just looked at my inbox and there was an email confirming that he had agreed to the employment agreement with the New York Clinic.
Michael: Well, that seems kind of like an anti-climactic story. How can we even talk about hard conversations when you don’t even know if he had the one you discussed him having or the outcome of the conversation?
Brad: Well, Michael, hold on to your hat because [00:13:00] 10 months later I get a frantic call from Dr. Homecoming.
Michael: Uh, Oh.
Brad: The New York Clinic has set an immediate termination notice to Dr. Homecoming, and in this notice it states that they plan to terminate him for cause or he could accept some separation agreement and resign without cause. If Dr. Homecoming agrees to waive any and all claims against the New York clinic, and if they do this, they’ll continue to compensate him for 90 days, but he’s out.
Michael: Well that’s bad, but at least Dr. Homecoming can be compensated for a short period of time. What about the non-compete? Did you learn if he had had the hard conversation at this point in time with the New York Clinic to attempt to modify it?
Brad: Michael, this is where we queue in “wamp wamp”.
Michael: Oh no.
Brad: Nope. He actually never even brought it up because he didn’t really want to rock the boat with his first employer.
Michael: Oh no, the avoidance strategy. Mm-hmm. , [00:14:00] When you’re talking about hard conversation’s that usually not going to work out well. This is much different than how Dr. Roger handled his hard conversation moment in the last week’s episode.
Brad: That’s right.
Michael: So, Dr. Homecoming moved to Long Island and signed the agreement with this comprehensive non-compete that covered a 10 mile radius of every clinic, every ASC, and hospital that the New York clinic provides medical services. Is that right?
Brad: You are paying attention, so I guess you are three for three today, Michael. Congratulations! Your new high score. Yes, and the New York clinic actually told them in the same letter, they plan on forcing the non-compete.
Brad: My client was the sole breadwinner for the family. His wife was helping take care of her elderly mother that lived in the neighborhood, which is again, why they moved there, and he’s now faced with needing to basically drive to the west side of New York, which apparently those in the New York area are already screaming,[00:15:00] Oh God, no. That’s almost impossible because the way this clinic was is basically covering so much dirt and so much territory, or maybe even he was thinking about moving to the other side of New York, but then they were trying to figure out what to do with the mother-in-law because now she was dealing with stuff. No matter what, because he was basically blocked out of Long Island, he had the restart somewhere else.
Michael: Oh, man. That’s a sad ending to the non-hard conversation.
Brad: The avoidant strategy?
Michael: Yes, yes. Let’s go to break and talk about some lessons to be learned from Dr. Homecoming, and I will be curious to hear ultimately what happened to him.
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Brad: Welcome back to Legal 123s with ByrdAdatto. I’m your host, Brad Adatto with my co-host Michael Byrd. Now, Michael, this season, our theme is hard conversations and Dr. Homecomings avoidance strategy of not having the hard conversation on the front end really bit him in the…
Michael: Nope, Brad, keep it clean. We don’t want to get that E rating next to it. We all know what you’re about to say, but you don’t have to say it.
Michael: We’re all thinking it.
Brad: Got it.
Michael: So yeah, let’s just briefly recap the chain of events. Dr. Homecoming, like Dr. Roger, was moving home. That was part of his plan A and [00:17:00] he does the right thing. I mean, almost, he should have called me instead of you, but he did call one of us so that’s good.
Brad: Hold on, strike that, no.
Michael: Now I’m seeing a new pattern, Brad, with these two stories. You gave him good advice. You told him here’s the things that…
Brad: Can you say that again? I couldn’t hear you.
Michael: Yeah, it crackled. You gave him good advice, told him what needed to be done, even though it was going to be hard, even though it was going to be awkward, but you gotta deal with the fact that you are moving to Long Island and that you can’t have this type of non-compete, and you’ve already said it once, he took the avoidance strategy, who knows why, didn’t even tell you about it, you didn’t even know until there’s a problem, and then he gets basically fired. Here we are, and they’re saying they’re going to enforce it and he’s blocked out of his hometown.
Brad: Yeah. [00:18:00]
Michael: I guess we can pick it up for there, but in situations like this, you’re getting this phone call, Brad, and our job is not to be the, I told you so person, but to determine, okay, well this is where we are now, here’s the situation, and how can we best assist Dr. Homecoming to get the best possible outcome, even if we’re choosing between some really poor choices.
Michael: So let’s take a step back and let’s talk a little bit about restrictive covenants and why those factor into this?
Brad: Yeah, and in the beginning of this, we were throwing out all these terms and as it relates to non-competes, but there are lots of different types of restrictive covenants. The one that most people are aware of is the non-compete. Obviously there’s non-solicitation, other confidential stuff, but a non-compete clause is part of a contract that is [00:19:00] designed really to bar an individual from working, for competing, in this case, medical practice for a set period of time in a designated geographic area. If you have a non-compete clause in your contract, and you choose to leave that medical practice, theoretically, they can subject you to some type of legal action and prevent you from working for another practice during that agreed upon time and geographic area.
Michael: Well, but Brad, I heard that states don’t allow non-competes for medical providers. That’s not enforceable.
Brad: Well, good old locker room talk that we hear from our doctors. For those who’ve listened to our red flag seasons, they may have heard the answer to this one, but yes, Michael, that is said a lot, and that is not always true. So first, be careful; just because you don’t have a non-competing agreement doesn’t mean you don’t have some type of other restricted covenant, like I said earlier, like non-solicitation or non-disclosures. The details of these [00:20:00] sections, it does matter. In reality though, the non-compete clauses or non-compete agreements are somewhat difficult to enforce to the fullest extent because courts and states tend to be very reluctant to prevent people from working, right? They don’t want that to happen, but if the state does allow it does allow that non-compete or non-compete covenant, in that sense, make sure you understand the essential elements and Michael, that typically in a non-compete, it must be reasonable in time, geographic scope, and the description of the actual activity.
Michael: Yeah, and as we’ve discussed in other shows and even kind of alluded to here, to drive the point home, non-competes are state driven.
Michael: So for example, in a state like California, a non-compete is unenforceable by law. While in Texas you can enforce a non-compete against a physician, but there’s strings attached.
Michael: They actually have to have this buyout type closet that we actually alluded or spoke about a little earlier in the show, [00:21:00] but finally, you have a state like New York and non-competes are permitted if the agreement meets the elements that you mentioned above with the time, geographic scope, and activity being reasonable.
Brad: Yeah, and I want to add something real quick about what you just said about the buyout. In some states it’s required for it to be enforceable, you have to have the buyout, and you brought a great point up earlier, which is that doesn’t mean the parties can’t agree otherwise to have a buyout in the agreement, so don’t get the state law issue versus Michael’s recommendation and the negotiations confused.
Brad: Some states do require it, but in the past few years, something we’ve noticed is that more states have been acting more hostile towards non-compete clauses in general inside of employment agreements or just in general, and an example that we have been looking at is in Massachusetts recently, the legislation played a major part in really moving forward to saying we don’t like non-competes a [00:22:00] lot and we’re going to restrict it. What happened is the state adopted this law called the Massachusetts Non- Competition Act, and what this act says is basically, in Massachusetts, employers must now meet several requirements for a non-compete, even to be valid and enforceable. Some of these things can be as simple as that person has a right to consult an attorney or they’re given 10 days before the actual agreement is actually effective. It has to be supported by some fair and reasonable considerations, and independent of the act, continued employment. It has to be legitimate business interest as to why they’re doing it. Finally, they have a garden leave provision that has to be inside the non-compete agreement.
Michael: Well, I’m want to get in to that garden leave, but you’re licensed in Massachusetts right, Brad?
Brad: That’s what I tell everybody.
Michael: Yeah, so this Massachusetts non-Competition Act is called the MNCA.
Michael: I expect you to have [00:23:00] that tattooed on your neck or your shoulder.
Brad: It’s on my bicep.
Michael: Okay, that’s acceptable. Now let’s get back to the garden. Okay, there’s a lot of legal roadblocks and legal words that you just mentioned, but I’m curious, you don’t hear the garden leave clause a lot, historically?
Michael: What does that mean?
Brad: Yeah, typically garden leave and law don’t seem to go together because most times lawyers are not practicing in the dirt, but I’m glad you asked. A garden leave clause is really what it says. It’s a provision really requiring an employer to pay an employee post-employment during that same restrictive time to keep paying them if they’re trying to keep the non-compete clause enforced. So an example is someone leaves and they say, great, I’m going to enforce the non-compete, but now I have to continue to pay you. So basically you’re telling someone they can go home and work from home, and I guess play in their garden and work in their garden. Nowadays, we may play video games, whatever it is, but this garden [00:24:00] leave basically says that the requirement is that the employer must pay, during this provision, at least 50% of the highest annual salary on a proactive basis during the entire restricted period. So again, let’s use an example, if someone was getting paid at the height, a hundred thousand dollars, and you want to enforce it for 12 months. You now have to pay this person out 50,000 to keep them from actually competing against you. Now as an employer, you have to make a decision. How much do you want to enforce on this non-compete because now I gotta pay somebody their salary or at least 50% of their salary during that timeframe to compete, so they won’t compete with me. Other states have started to pay attention. Colorado, Illinois, Oregon, all these states have developed somewhat restrictive, non-compete laws.
Michael: I do think it should be called video game leave instead of Garden leave. That’s very old school.
Michael: Okay, well, another common issue that can trip up a non-compete if it’s not [00:25:00] done correctly, is there’s this legal concept, Brad, that in most states, that the employee must be given some form of adequate consideration in return for a non-compete.
Brad: Ooh, that’s a fancy word. I don’t even know if that’s a vocabulary word of the day because I feel like we’ve had a lot thrown around, but what does that mean for our audience?
Michael: Well, all the lawyers out there just had PTSD from law school when they heard consideration from contracts law?
Michael: It basically means that the employer must give the employees something in return for signing the non-compete. Now, in some states, it’s just you give them a job.
Brad: Oh, yay.
Michael: So because you give them a job, they will have to sign the non- compete, but other states require something more than that. Maybe its cash or more commonly access to what they call confidential information, which is the secret sauce of the company. You’re disclosing to [00:26:00] them as part of their job, the secrets of the business. That justifies you restricting them from taking that information, going across the street, and competing with them.
Brad: That’s right, so now that we’re diving deeper into this non-compete talk, once we have this conversation of, let’s go on towards the enforceability side, and a risk associated with that non-compete. For example, we’ve seen a ton of employment agreements where as written, the non-compete is unenforceable on its face by law. What does that mean to the employee?
Michael: Yeah, I mean the enforcement, you have to go to court and there’s a cost element we can talk about as well, but just from a purely law perspective, you have two competing forces at play. Number one is you have statutory and appellate, the kind of case law that will tell you [00:27:00] how you stand. A lot of times that stuff is very pro employer, if it’s a state that allows not competes. Even in those states, the competing force is that the trial courts tend to disfavor these non-competes. They want people to be able to work. What that means is you have a whole lot of uncertainty if you want to get into a fight over a non-compete. So it creates some really uncomfortable moments when you’re trying to make some decisions like we were facing here with Dr. Homecoming because it’s a pretty unenforceable looking contract, but there’s a lot of uncertainty that would go with going down that path of litigating.
Brad: Yeah, and in considering this case, we have this very large geographic area and the conversation I ended up having with Dr. Homecoming was, he’s like, [00:28:00] I’ve only been there for 10 months and I’ve only seen patients at a few clinics and not that many hospitals. He really wanted to say, look, I was really just working basically at two clinics and did surgeries at just two hospitals, but the contract as written, and there was no restriction, meaning he wasn’t like, that would work because in his mind, all those other places, maybe he went one day in that 10 months or maybe he discharged one patient in 10 months and so we did discuss hiring a New York litigation council to help fight the group. Again, he was a sole breadwinner. He’s only been really making money for 10 months at this point because he’s just outta his fellowship, and he didn’t think he could afford the fight to figure out if he could reduce the non-compete scope and especially since in this case, the group was an 800 pound gorilla in the area.
Michael: Yeah, I mean that gets to kind of jumping back, Brad. I talked about uncertainty and then that factor that he said that he only actually worked at a couple locations [00:29:00] is really important and a really good piece of evidence if he were to fight this, but in reality, this 800 pound gorilla is a huge issue because that creates another level of risk and that is the cost to defend these cases. If he were to just compete and get sued or even take it the other way, he was to sue to try to get a declaration that it was unenforceable, he’s going to spend a significant amount of money in a short amount of time just to find out if he was okay in knowing that that’s just to deal with this risk that we talked about before that was uncertain.
Brad: Yeah, and because Dr. Homecoming took the avoidance strategy, he was in a really bad position. He signed his contract, didn’t really have the financial ability to challenge us for non-compete. Dr. Homecoming was desperate to [00:30:00] stay in this area. Really wanted the group to waive all the non-competes since he was just there for 10 months. For audience members, there were multiple conversations I had with Dr. Homecoming, the New York Clinic’s attorney going back and forth, and the group just flat out said, no, we’re enforcing the non-compete. Initially we got in a little bit more, and started having our hard conversations and more intense, and it got more painful, obviously, because now we’re on the backside of the agreement where we’re trying to find some means, and eventually we were able to carve out one hospital and one area that he basically didn’t do any work in, and we had that one hospital and the one clinic removed from the list so Dr. Homecoming could stay to open his own practice. Now, lucky for the group and what we eventually found out, they did feel a little bad that it didn’t work out, but they still wanted to block him out of their major territories. So, Dr. Homecoming was allowed to stay with his family. However, he was still [00:31:00] prohibited from joining any other group, so he could do his own shop. So again, basically he was starting over, even though he got a win. But he started from scratches, and an Orthopedic surgeons, not an easy task. So, Michael, final thoughts?
Michael: Yeah, I mean, you can kind of connect these hard conversations and whether you have them or not to the landing on the moon shows that you started with. Dr. Roger had his hard conversation and his experience though bumpy was more like the Tom Hanks narrated documentary of what happened because America landed on the moon first. Dr. Homecoming was like, this is what happens when you don’t have the hard conversation. Russia lands on the moon first, and look at the series of unfortunate events that unfolded.
Brad: I love that tie in, by the way. All right, audience members, next Wednesday, no more contract talk. We’ll have a hard conversation when cash versus compliance butts heads at the IV therapy board.
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