Biting or Toothless? What Dentists Need to Know About Non-Competition and Non-Solicitation Agreements in 2022
We live in a free-market economy based on fair competition and the principle that everyone should be able to make a living in their chosen occupation or profession. Accordingly, the law is not a fan of any restrictions that infringe on otherwise legal business activities or limit competition. Nevertheless, that hasn’t stopped business owners in all sectors of the economy, including dentistry, from trying to restrict what employees can do after they part ways by inserting non-competition and non-solicitation provisions in their employment contracts.
But in Illinois, such restrictive covenants are often not worth the paper they’re printed on.
Not only have Illinois courts over the years rejected and refused to enforce non-competition agreements that they deem unreasonably broad and oppressive, but amendments to Illinois law that became effective on January 1, 2022 explicitly prohibit non-competition and non-solicitation agreements for whole classes of employees.
As lawyers for the dental profession, we often get questions about what restrictions dentists can face from or impose on colleagues after they leave a practice. And while narrowly tailored non-competition and non-solicitation provisions can still be enforceable, those that are poorly drafted or violate the new law can give a practice owner a false sense of security, or cause a dentist to needlessly reject job offers or other opportunities.
Therefore, practice owners and dentists alike should understand precisely what Illinois law permits and what it doesn’t when it comes to restrictive covenants
Non-Competition and Non-Solicitation Aren’t The Same Things
People often use the term “non-compete” interchangeably for two related but distinct limitations on future business and employment activities. But non-competition provisions and non-solicitation clauses are very much different, and judges and the law treat them as such.
Typically, a non-competition provision in a dental employment agreement will purport to restrict a dentist’s ability to practice within a specified geographic area for a set time. For many dentists, the effect of such a provision, if enforceable, is that they will not be able to treat any patients in the identified area until the end of that designated period.
Non-solicitation provisions, on the other hand, only limit a dentist’s ability to actively and directly lure or “poach” patients or employees of their former employer over to their new practice, though they are free to set up shop and treat patients. Importantly, practice owners can’t ethically stop a current patient from going to a former dental associate for treatment on their own if the dentist did not actively solicit them.
2021 Changes In The Law
For decades, Illinois judges have not hesitated to hold restrictive covenants in employment agreements unenforceable or modify them to make them more limited, especially if they are overly broad, unsupported by sufficient consideration, or involve lower-wage workers.
Amendments to the Illinois Freedom to Work Act passed on May 31, 2021 place further limits on the validity and enforceability of non-competition and non-solicitation agreements. These new restrictions apply to all contracts and provisions dated on or after January 1, 2022.
Non-Competes and Non-Solicitation Agreements Prohibited For Certain Employees
Perhaps the most straightforward and significant part of the amendments is that they completely prohibit non-competes and non-solicitation agreements for employees whose income is below a specific threshold. Specifically:
- Non-competition agreements are invalid and unenforceable as to employees whose expected annual earnings are less than $75,000.
- Customer/employee non-solicitation agreements are invalid and unenforceable as to employees who have expected annual earnings of less than $45,000.
These baseline income amounts are set to increase in 2027 and every five years thereafter. Given that the majority of dental employment agreements involve compensation above the foregoing limits, it is the law’s other elements that are more likely relevant to the evaluation of a restrictive covenant’s enforceability
A Restrictive Covenant Must Protect a “Legitimate Business Interest” Considering the “Totality of Circumstances”
One of the fundamental principles Illinois judges have used to evaluate the validity of restrictive covenants is to assess the facts and circumstances surrounding a provision and decide whether the limits on competition or solicitation are narrowly tailored to protect an employer’s “legitimate business interests.”
The changes to the law reflect and codify this fact-specific approach. The statute now explicitly states that ‘the same identical contract and restraint may be reasonable and valid under one set of circumstances and unreasonable and invalid under another set of circumstances.” The amended law establishes several factors that a judge may consider when determining whether the employer has a legitimate business interest, including:
- The employee's exposure to the employer's customer relationships or other employees
- The near-permanence of customer relationships
- The employee's acquisition, use, or knowledge of confidential information through the employee's employment
- The time restrictions, the place restrictions, and the scope of the activity restrictions.
Adequate, Independent Consideration Required
An agreement or contract of any kind – including those involving restrictive covenants - must be supported by adequate consideration to be enforceable. Under the amended statute, “adequate consideration” for a restrictive covenant in a dental employment agreement means:
- The dentist worked for the practice for at least two years after signing an agreement containing a non-compete or non-solicitation covenant, or
- The practice otherwise provided consideration adequate to support a covenant not to compete or solicit, such as a set period of employment and additional compensation or benefits.
Judges Can Still Revise Overly Broad Restrictive Covenants
The new law also codifies the discretion judges have used to reform and rewrite overly broad or otherwise legally deficient covenants – a practice known as “blue penciling” - rather than holding the entire covenant unenforceable.
Proposed or existing dental non-competition agreements can’t be evaluated in a vacuum; they must be drafted carefully and in the context of the specific practice and the market in which its provisions would be enforced. Any dentist wishing to or asked to enter into a non-competition agreement should consult with an experienced attorney who can help them make informed decisions about their rights.
You Focus On Your Patients. We’ll Focus On You.
At Grogan, Hesse & Uditsky, P.C., we focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you.
Please call us at (630) 833-5533 or contact us online to arrange for your free initial consultation.
Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.
Speak to an Attorney
