Non-compete Clauses

With employment contracts and contracts to sell (pharmacies), the non-compete, or non-competition, provision is often considered one of the primary reasons for the contract to be created.  The non-compete clause restricts the employee from working for a competitor or anyone else where the employment could or would directly or indirectly interfere with the current business of the former employer or buyer.

While the pharmacist cannot be prohibited from working in her profession overall, reasonable restrictions can be imposed.  Generally, there are two: time and proximity.  Most non-compete clauses forbid employment that would interfere with the former employer or buyer for anywhere from one to three years.  Occasionally this number may be as high as five years, but courts demand the time period be reasonable and three years has been overwhelmingly held as the outermost time period.  Then, the pharmacist may not work in a location within a reasonable geographic area from the former employer or buyer.  Often, this is determined as a number of miles from the former location.  Here, reasonableness is more determined by demographics.  Thus, in a densely populated metropolitan area, the geographic distance could be a few city blocks, while in a sparsely populated area with few pharmacies, the departing pharmacist could be reasonably told that she could not seek employment anywhere in the entire county.

Courts in Kentucky are not big fans of non-compete clauses.  Indeed, they have a reputation for seeking means to vitiate the provisions.  However, many survive because those same courts love contracts and do their best to preserve them.

Lawsuits over contracts are quite often over the non-compete clause and alleged violations of it.  Below are a few examples of cases:

Case #1:

Pharmacists Jack and Jill decide to sell their independent pharmacy to Big Chain.  Big Chain submits a contract to buy their store with a non-compete clause: neither Jack nor Jill may work in a manner that directly or indirectly interferes with BC’s business within a 2 mile radius for two years.  Jack and Jill sign.

Just weeks later both Jack and Jill are sick of retirement.  Jack goes to work for a nutritional IV pharmacy three hundred yards from their former location.  Jill goes to another independent pharmacy half a mile from the BC purchase and works as a fry-cook at the pharmacy’s grill.

Big Chain files a lawsuit against one of them.  Who was it?

Jill, of course.  Jack is within the geographic area but a nutritional pharmacy does nothing like what a Big Chain retail pharmacy does; he cannot directly or indirectly interfere with BC’s business.

Jill is indirectly interfering with BC.  How?  Her mere presence, the court held, could attract former customers to her current place of employment.  “If it is good enough for Jill to cook there, it is good enough for me to fill my prescriptions there” is what both BC and the court thought former customers of Jill’s would think.

Case #2:

Three pharmacists working at Home Health Pharmacy, where only IV meds are prepared, want to leave. The owner reminds them of a two year, two mile radius non-compete clause in their contracts.  The pharmacists agree and resign.

One pharmacist leaves the county and goes to work for another IV med pharmacy.  Another takes a job at a local retail independent, well within the two mile distance.  The last is hired by an IV nutritional pharmacy, also within two miles of the former employer.

Home Health sues the third pharmacist working at the IV nutritional pharmacy.  Pharmacist denies the allegation of having violated the non-compete clause, stating that preparing IV meds and IV nutrition are separate types of work and her being at the new location does not directly or indirectly interfere with Home Health’s business.

The court sides with Home Health.  Here is where this one gets hard.  The court agrees that the two businesses are separate in their type of pharmacy.  However, the IV nutritional pharmacy previously had all the equipment to do what Home Health does, and now, the court says, in this pharmacist they have the requisite knowledge.  IV nutritional pharmacy will be unable, in all likelihood, to remain out of competition with Home Health as it would now be so easy for them to do so.  It would be like a pharmacist leaving Big Chain Pharmacy and going down the street three blocks to work for Independent Pharmacy.  Ultimately, the pharmacist, perhaps without even saying anything, is more likely than not to use his knowledge of Big Chain’s business strategies to undercut Big Chain and help his new employer.  The court holds that the third pharmacist must leave the IV nutritional pharmacy for the duration of the non-compete clause’s provisions.

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