BLOG: Exceptions to non-competes
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Key takeaways:
- Practice owners can negotiate for exceptions to non-compete restrictions.
- The seller should compile a list to prompt a discussion with the buyer on acceptable activities.
As we discussed in our prior blog entry, you can expect that the buyer will require you to agree to non-compete restrictions.
Non-competes are contractual obligations that restrict you from competing with the buyer and the practice itself. Depending on how negotiations go, non-competes can be broad or narrow, but they’re all essentially designed to achieve the same goal: Buyers want to disincentivize you from owning or working for another practice that would hurt the business that you just sold and the private equity platform in which you just invested.
While non-compete restrictions can be, well, restrictive, you can negotiate for permitted exceptions to the non-competes. The least controversial exception is your ability to hold investments in publicly traded companies that compete with the buyer (up to a certain percentage) or mutual funds or similar type of retirement funds. Some buyers may want to further clarify that your investments must be “passive” investments, meaning you can’t be involved in the management of the publicly traded company that you are invested in.
The more nuanced permitted exception, and one that is often most important to physician sellers, is the ability for you to continue doing certain activities that are related to the practice of medicine but are outside of your clinic hours. For example, you might be paid to do speaking engagements or consulting work in the medical space from time to time. Maybe you serve on scientific advisory boards or teach at a local university. Maybe you’re occasionally hired as an expert witness in court cases. Maybe you’re a co-founder or investor of a biotech start-up, or you personally invent medical devices. You might be a landlord to the practice’s offices or the offices of other medical practices.
Start thinking about what “outside activities” you have done, currently do or might want to do, and put it on a list for the buyer to review. Not sure if an activity of yours is competitive or not competitive? Throw it on the list anyway. This will facilitate a discussion as to what types of outside activities the buyer is generally open to and whether you will be able to continue to participate in a particular activity without seeking prior permission from the buyer or the practice.
While the activities list is really intended to leave no room for doubt as to whether any particular potentially competitive activity is or is not acceptable to the buyer, the practical reality is that most buyers will want you to continue to engage in these activities because they will continue to build and enhance your and the practice’s brand and reputation.
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