How Enforceable is a Dentist Non-Compete Agreement in Arizona?

Non-competes are enforceable under Arizona law, as long as they are reasonable and do not pose an undue hardship.

For practice sales in the Phoenix area, I generally use a radius of 10 miles from the practice location for a period of 2 years after the sale. For employment agreements, Arizona courts are more restrictive, so if I am drafting the employment agreement, I will often use a radius of 5 miles for a period of 1 year.

These are only general rules of thumb, though, and my advice in any specific situation will differ depending on my client’s goals, the nature of the agreement, and practical considerations.

Arizona Law On Non-Competes

When determining whether a non-compete is enforceable, Arizona courts look at whether: “(1) the restraint is greater than necessary to protect the employer’s legitimate interest; or (2) [the employer’s] interest is outweighed by the hardship to the employee and the likely injury to the public.”[1]

In other words, courts will first look to see if the non-compete is broader than what is reasonably needed, in terms of both time and distance, to protect the party seeking to enforce the non-compete. The court will then look to see if enforcing the non-compete will impose an undue hardship on the departing dentist or limit the public’s access to dental care in the area surrounding the practice.

In Phoenix or Tucson, a ten-mile non-compete may not pose an undue hardship to a dentist or limit a patient’s choice. However, in smaller towns, with fewer treatment and employment options, a ten-mile radius could mean the dentist would have to move, leaving patients in the area with few or no alternative treatment options.

Arizona law also has a wrinkle that affects how courts approach non-competes. If a court finds a non-compete clause overly broad, it will delete the language from the contract entirely, but will not add language stating what it thinks is reasonable. This is called the “Blue Pencil Doctrine.”

Under this rule, if a contract has an unreasonable non-compete provision and has not been drafted with the appropriate language, the court could completely invalidate the non-compete by deleting the entire clause.

If I am drafting a non-compete in any context, I will minimize the chance that my client will be left without an enforceable non-compete by including “step-down” provisions. For instance, a step-down provision might state that if a court finds a ten-mile, two-year provision to be unenforceable, then the scope would be five miles for one year. This helps avoid the consequences of the Blue Pencil Doctrine because, even if the court deletes the portion it finds is overly broad, there is an alternative provision that may survive, as long as the court finds that provision to be reasonable.

Practice Sales Versus Employment Agreements

Practice sales and employment agreements are the two contexts in which non-compete agreements usually appear. Courts use the same general test in both, but the results can be very different.

Essentially, what might be a reasonable non-compete to protect a buyer who just spent hundreds of thousands of dollars to buy the goodwill of a practice might not be reasonable to protect an employer who is simply trying to stop an associate from finding another job that could compete with the employer’s practice.

This is not to say that an employer can never have an enforceable noncompete agreement with an associate dentist. It just means that in drafting the non-compete, a lawyer must consider the circumstances and adjust the scope of the non-compete accordingly to maximize the chances of enforceability.

Practical Considerations

In evaluating a non-compete, the location of the practice and the type of agreement involved (practice sale versus employment agreement) are just the starting point. There may be other considerations that must be taken into account, depending on the circumstances.

As one example, if a dentist is buying a practice and financing the purchase price, the dentist’s lender might have specific requirements for the noncompete that have to be taken into account. Some lenders require a ten-mile radius for 3 years, while others may require even broader non-competes. This may increase the risk that a court will find the non-compete unenforceable and heighten the need for a step-down provision.

Conversely, if I am representing an associate dentist in negotiating an employment agreement with a non-compete that is clearly overly broad I check to see if it has step-down provisions. If it does not, I may advise my client to let it stand as-is, since there would be a higher likelihood of the non-compete being completely unenforceable than there would be if it is negotiated downward to something more reasonable.

Regardless of how enforceable the non-compete ultimately may be, though, there may be instances where one side is willing to take the issue to trial and beyond, and there are never any certainties in litigation. In those cases, the dentist has to determine whether, at the end of the day, the likelihood of being right is worth the time and expense it will take to get there.

Conclusion

Although non-competes can be enforceable in Arizona, there are a number of legal and practical considerations that dictate whether a noncompete agreement can or should be enforced in a particular situation. These include the scope, precise language, and practical effect of the non-compete under the circumstances, taking into account the parties and personalities involved on both sides.

DISCLAIMER: The information in this article has been prepared for informational purposes only, does not constitute legal advice, and anyone reading this article should not act on this information without seeking individualized advice from an attorney. The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Patrick is a partner with the Scottsdale based law firm of Comitz | Stanley, practicing in healthcare and insurance law. / 480.998.7800.

[1] Valley Med. Specialists v. Farber, 194 Ariz. 363, 367 (1999).