Lawyer for Dentists, Dental
Corporations and Group Dental Practices
By Matt Dickstein
May a dentist compete against his or her
former practice?
Thank you for finding my suite of articles on
the basic corporate, business and contract law issues for
dental corporations and group dental practices in
California. The articles in this suite are:
If you are in a group dental practice, you
might wonder, “Can I or another dentist in this practice set
up a competing practice?” “Will a non-competition agreement
prevent it?” These questions are crucial both to the
existing group and the dentist who would set up the
competing practice.
In this article I give a brief roadmap of
the issues relevant to when a dentist sets up a competing
practice. I give legal and common-sense advice to all
concerned parties. The issue is important because, when a
dentist leaves a group to set up a competing practice,
invariably the former group is unhappy and litigation is a
real threat.
The contract might not be worth the paper
it’s written on.
After termination of employment, a
contractual non-competition clause usually is
unenforceable. Under California law, a dentist ordinarily
may compete with his or her prior practice or group, even if
the dentist signed an agreement that prohibits competition.
Of course, there are exceptions to this rule. In relevant
part, a non-competition clause can be enforceable if it was
(i) entered into as part of the sale of a practice; or (ii)
entered into pursuant to a partnership agreement or
shareholders agreement that prohibits a withdrawing
dentist’s competition in a limited geographic area.
Who gets the patients or referral sources?
Although a non-competition agreement
usually is unenforceable, the departing dentist still may
not engage in unfair competition. Unfair competition
includes the use of confidential information and trade
secrets of the practice, including for example lists of
patients or referral sources. In general, the law prohibits
a dentist from using data from the practice, but only if the
following two elements exist: (i) the data is a trade
secret; and (ii) the dentist misappropriates the data.
As to the first element, given the duty of
patient confidentiality, usually we can assume that a
patient list is a trade secret. Referral sources require an
analysis of the facts and circumstances to determine whether
they are trade secrets.
As to the second element, once the
practice or group has proven that the data at issue is a
trade secret, it then must prove that the dentist
misappropriated (stole) the data. California courts look to
whether the departing dentist actually solicited the group’s
patients or referral sources, as opposed to merely
announcing a change in professional affiliation. In other
words, the dentist may announce his or her new status, but
may go no further. The distinction between solicitation and
mere announcement is a shifting line, however, and the
departing dentist must take great care not to cross it.
California law for dentists makes the
issue even more complex and contradictory because it also
requires that the departing dentist announce his or her
departure to existing patients. A departing dentist may not
abandon a patient without written notice to the patient. To
date, no court has addressed this issue. For more information on this topic, see
Leaving
a dental practice / closing a dental practice.
Who gets the employees?
The rule for the solicitation of office
managers, technicians and other employees is similar to the
rule for the solicitation of patients. A departing dentist
may not solicit or ask the employees to leave the former
group. Rather, the departing dentist may only announce the
move. The dentist must then back off, and permit the
employees to initiate the next contact – by requesting to
join the departing dentist in the competing practice.
Finally, please keep in mind that the law
of competition is by its nature fluid and gray. There are
few hard and fast rules, and no guarantees can be given on
the outcome of any particular dispute. Moreover, the costs
of litigation (let alone losing in litigation) are such that
one does best to avoid it altogether. Use your
common-sense, and above all, act in a decent and fair
manner. Courts try to protect the good guys in a dispute,
so be that person.
This article only gives a short roadmap of
the issues raised by a departing dentist’s competition with
his or her former group or employer. There is a lot more to
this subject than introduced here. Before you do anything,
get competent legal counsel to help you.
Call me to schedule a
legal consultation: 510-796-9144 | 