Posted by: Robert Markette
December 22, 2005

I was talking with a client the other day about non-competition agreements.  The client was trying to find a way to stop her employees from leaving her agency and taking her clients with her.  Now depending upon the particular facts, there are many ways an employer could respond to such activity.  My client raised the idea of non-competition agreements and her employee told her they were not enforceable.  I always love it when employees tell employers that.  What else is an employee who is considering poaching a number of your patients going to say?  “Gee, great idea, can I sign that tomorrow?”

In reality, in many states a properly drafted non-competition agreement is completely enforceable.  (Like most things in the law, the viability of a non-competition agreement varies ffrom state to state.)  The problem is that many employers do not have a properly drafted agreement.  I have seen home health agencies using non-competes they “borrowed” from another agency.  Unfortunately, the agreement is either only part of the agreement or, more often, written with another jurisdiction in mind.  The result is a useless piece of paper. 

My other favorite response to a non-compete in the healthcare setting is “patient choice.”  Well, patients do have a choice, but that doesn’t give your employees the right to recruit your patients.  Furthermore, even if they choose a different provider, that does not mean they can have your former aide working for another agency.  Many a doctor has left a practice group and found out that his non-compete does in fact prevent him from serving patients in his old practice group’s service area.

One thing employees do seem to misunderstand about non-competes is that they are not intended to prevent the employee from “ever working in this town again.”  Most jurisdictions agree that you cannot keep a former employee from using their general skills.  Your employees are free to continue working, they just can’t violate the terms of the agreement.  (Which usually involves some form of geographic restriction.)  For example, if you had a director of nursing leave to go to work in a hospital, but not for the hospital’s home health agency, that would be acceptable.  If she left to start a competing agency or hospice just down the road that would be prohibited. 

Another reason to have your employees sign a non-competition agreement is that it is far more difficult to take action to stop employees from raiding your agency without one.  Last spring, the Indiana Court of Appeals in Primecare Home Health v. Angels of Mercy Home Health Care ruled against a plaintiff home health agency who sought an injunction against former employees who had stolen a number of its clients.  In that case, the former administrator had left and started her own agency.  Not surprisingly, the new agency hired a number of the Plaintiff’s employees and began serving the Plaintiff’s clients.  The Plaintiff sued alleging a misappropriation of trade secrets claim, because the former employees did not have non-competition agreements.

The court ruled that the solicitation by former employees was not a misappropriation of trade secrets.  It appears, that this was partially a result of the Plaintiff failing to provide any evidence that the Defendant’s had physically taken the client list.  The Plaintiff did not identify any former clients who became the Defendant’s clients and it failed to submit a copy of its customer list into evidence.  It later became clear that Plaintiff’s primary argument for a violation of the Trade Secrets Act was the face to face solicitation of the Plaintiff’s patients.  The court felt that this type of conduct was properly addressed by a non-competition agreement, not an injunction. 

Of course, the Court failed to address the fact that contacting patients using information gained during the course of employment to entice them to another provider is a breach of the employee’s fiduciary duty to her employer, which, in my opinion meets the statutory definition of misappropriation.  Furthermore, an employee may only know part of a home health agency’s patient list, but even that part still contains information that is arguably trade secret information.  For example, the employee will be aware of the patient’s needs, Medicare or Medicaid eligibility, and the amount of reimbursement available for the case.  This is all information that is not readily available elsewhere and has independent economic value.  The defendant agency was able to build up a viable client base quickly, because it knew which individuals needed home health care and requested they come to the new agency.  This type of client list abuse has been the subject of many trade secret act actions.  It seems this case revolved more around a failure to provide sufficient proof.

The case makes clear, that,in Indiana, you are in a much stronger position if you have a non-competition agreement with your employees (which is true for most states). and that the courts in Indiana feel a non-competition agreement is appropriate in this type of case. 

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