Social Work Ethics and Non-Compete Clauses in Employment Contracts and Independent Contractor Agreements

 

Social Work Ethics and Non-Compete Clauses in Employment Contracts and Independent Contractor Agreements

By Sherri Morgan, LDF Associate Counsel, and Carolyn I. Polowy, NASW General Counsel

© September 2012.  National Association of Social Workers.  All rights reserved.

Introduction

Social workers who are leaving employment for a new work setting or private practice are sometimes surprised and dismayed to discover that they may face legal limitations on their ability to transfer clients to the new work setting due to an existing non-compete clause contained in an employment contract or agreement signed months or years earlier.  The legal status of non-compete provisions varies considerably based on a number of factors including state law, the profession or business at issue, the nature of the non-compete’s  limitations, and the specific facts of the case.  Concerns about continuation of treatment for clients who are receiving mental health services are frequently raised by the clinical social worker who is planning a career transition.  This article will address the legal status of non-compete provisions applied to mental health professionals within health care and the applicable ethics considerations for social work practice.

Background

Many social workers are required to sign a written contract as a condition of employment or to participate as an independent contractor provider in a private group practice.  In some respects the employment contract may be considered to be a “contract of adhesion,” that is, “a standardized contract drafted by the party of superior bargaining strength that relegates to the weaker party only the opportunity to adhere to the contract or reject it” (Sanford v. Castleton Health Care Ctr., L.L.C., 2004).  One legal commentator has noted, “Most contract terms are offered by employers on a take-it-or-leave-it basis, and are set under the shadow of employment at will – the employer’s presumptive power to fire employees for any reason at all, including refusal to accept the employer’s proffered or modified terms of employment” (Estlund, C.L., 2006).  In the case of the unemployed social worker seeking work, she is not likely to have bargaining strength sufficient to negotiate contract modifications without jeopardizing the employment offer.  It is the imposition of certain terms, such as non-compete provisions that may cause ethical conflicts for social workers in practice and are of concern here.

“Non-compete” clauses prohibit social workers from seeing agency clients in the social worker’s private practice or other professional office setting both during the period of the contract or employment relationship and afterwards.  Non-compete covenants for professional services such as medical care, legal representation and mental health treatment raise distinct issues that are not present in other businesses such as the sale of goods or non-personal services and a thorough knowledge of applicable state law may be required to clarify the legally permissible options available to a social worker who is relocating to a new employer or private practice.

Ethics Considerations

While non-compete clauses are becoming a more common business practice, such provisions may create ethical and legal dilemmas for the professional social worker.  In some situations the ethical standard of care would support the social worker continuing to provide treatment to a particular client when a social worker leaves an employment setting.  In such a situation a non-compete clause may pose a conflict between the ethical principle to maintain the commitment to the client’s interests as primary (NASW, Standard 1.01, 2008) and the requirement that social workers honor their employment commitments.

The NASW Code of Ethics, Standard 3.09(a) states, “Social workers generally should adhere to commitments made to employers and employing organizations” (NASW, 2008). This ethical principal may raise a dilemma for the social worker who seeks to continue treating a client upon leaving one practice for another, but who is bound by the terms of a contractual non-compete clause. The NASW Code of Ethics, Standard 1.16(f) states, “Social workers who are leaving an employment setting should inform clients of appropriate options for the continuation of services and of the benefits and risks of the options” (2008).  A noted social work ethics expert, Frederic Reamer, provides the following guidance:

Social workers who inform clients that they may choose to continue working with them in the new employment setting must be exceedingly careful to ensure that the clients are fully aware that this is merely an option; social workers should not pressure or coerce clients to follow them to their new employment setting. A social worker could stand to benefit if clients choose to leave their current agency and continue working with the social worker in a new private practice. Practitioners must avoid the appearance of impropriety and actual conflicts of interest that may harm clients (Standards 1.06[a] and [b]).  A social worker’s primary goal should be to meet clients’ needs (Standard 1.01) and respect clients’ right to self-determination (Standard 1.02). They should carefully discuss with the client all available and reasonable options and assess their benefits and risks. Clients who choose to follow their social worker to a new employment setting should do so because continuing to work with that social worker is the best way to meet their needs (Reamer, 2006).

Of course, it is also necessary to review the specific language of the non-compete agreement to determine if there are legal issues that need to be addressed if the client transfers with the practitioner to the new practice. It may be necessary to factor into the equation the possibility of litigation that could involve the client as a witness if a decision is made to enforce the non-compete agreement against the social worker. Consideration should also be given to whether the client’s insurance or third party payment would follow the client if he/she transfers. The client’s best interests are multi-pronged and all aspects should be considered in reviewing the application of ethical and legal principles.

Legal Status of Non-Compete Clauses

State laws vary as to the level of acceptance for non-compete clauses and in their interpretation and application.  Non-compete clauses are disfavored for law firm practices due to clear ethical prohibitions in the legal profession; however, they have wider acceptance in the medical field (see Karlin v. Weinberg, 1978).  In Intermountain Eye & Laser Ctrs., P.L.L.C. v. Miller (2005), an Idaho case, the court explained, “Generally speaking, non-compete provisions are permissible means to protect employers from their former employees who would use proprietary or other confidential business information to compete against them.…And medical services firms, particularly those providing specialized care, generally have protectable interests in referral sources.…An employer also has “a protectable interest in the customer relationships its former employee established and/or nurtured while employed by the employer and is entitled to protect itself from the risk that a former employee might appropriate customers by taking unfair advantage of the contacts developed while working for the employer.”

It may be difficult to determine the status of non-compete provisions in a particular state without consultation with an attorney.  Even states that have a per se rule banning non-compete clauses in physician contracts (Chase, 2011, citing Alabama, California, Florida, Louisiana, Montana, and North Dakota) may have exceptions.  As a result, depending on the particular state, non-compete clauses may be permitted for:

  • Partial restraints of trade such as noncompetition in a limited geographic range or specific time frame (e.g., Alabama)
  • Noncompetition linked with the sale of a business or dissolution of a partnership (e.g., California)

In addition, even where non-compete clauses are void, some valid restrictions or contractual monetary penalties may still have a negative impact on the ability to practice unimpeded in a new setting, such as:

  • Monetary agreements to pay a sum to the former employer in exchange for engaging in a competing business within a specified period after termination of employment (e.g. Colorado, Delaware)
  • Restrictions on solicitation of clients of the former employer or restrictions on the use of client lists (e.g., Florida).

Enforcement of Non-Compete Clauses

Massachusetts legislated a ban on non-compete provisions that specifically applies to the practice of social work:

§ 135C. Non-Compete Clauses Unenforceable.

A contract or agreement creating or establishing the terms of a partnership, employment, or any other form of professional relationship with a social worker licensed under this chapter that includes a restriction of the right of the social worker to practice in any geographic area for any period of time after termination of the partnership, employment or professional relationship shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement” (Ann. Laws Mass., 2008).

In most states, the status of non-compete clauses is determined by court decisions.  “Although restrictive covenants are a type of restraint of trade, the common law rule is that a post-employment restrictive covenant is enforceable if it is ancillary to an employment agreement, and is reasonably limited to such territory and time as may be reasonably necessary for the protection of the employer, without imposing undue hardship on the employee”  (Schwab, 1987).  Courts rely heavily on the facts surrounding each contract to decide cases involving the enforcement of restrictive covenants such as a non-compete clause, resulting in judicial decisions with a variety of outcomes and legal theories.  Many of the reported cases have permitted restrictive clauses to be enforced by aggrieved former business partners or former employers.

In states that permit non-compete covenants in physician employment contracts, a number of factors have been identified for judicial consideration as to the enforceability of a particular contract:

1) whether the covenant goes beyond preventing a doctor from practicing the specialty performed by the employer;
2) whether the duration of the restriction is longer than the typical treatment interval of patients in the specialty;
3) whether the restriction unduly interferes with patients’ right to continue seeing the doctor of their choice by requiring patients to travel an unreasonable distance to see the doctor;
4) whether enforcement of the covenant would result in a shortage of doctors practicing the particular specialty in the area;
5) whether enforcement of the covenant would grant a monopoly over a specialty in an area to the employer for the duration of the restriction; and
6) whether enforcement of the covenant would bar doctors from engaging in activities not in competition with their former employers (Sanchez, J., 2010).

There has been much reported litigation regarding physicians and non-compete clauses, but little directly involving social workers.  In an analogous New Jersey case, Comprehensive Psychology System, P.C. V. Brett Prince, Ph.D. (2005), the application of a regulation issued by the State Board of Psychological Examiners was reviewed and upheld.  The regulation prohibited psychologists from entering into restrictive covenants.  The Court based its holding on the “critical patient-psychological relationship” and concluded that enforcing the restrictive covenant would interfere with the right of continued treatment from the psychologist.   Another reported cases addressing the application of non-compete clauses in a mental health professional setting is Lowe v. Reynolds (1980). There, a speech pathologist who concentrated her practice on special education cases worked for a mental health center under a contract whereby the clients were considered to be the patients of the center. The speech pathologist received the clients’ fees and then paid the center a monthly fee for use of the facility and support services. After giving appropriate notice, the speech pathologist sought to open a private practice. The center sued to restrain her from violating the terms of the restrictive covenant that forbade her from operating a private practice “within a radius of forty (40) miles from the Center for a period of three (3) years after termination.”

In upholding the speech pathologist’s right to treat patients who chose to continue with her in a private practice, the court stated:

Defendant makes a strong argument that enforcement of the restrictive covenant would lead to public harm. She states that the patients in this type of counseling are not readily transferable to another therapist and that doing so would probably cause confusion and damage to the patients. They need the personal relationship of counseling to continue, especially in view of the fact that many of them are young.    . . . Thus, a substantial question of potential harm to the public exists” (Id. at 259).

The rationale relied on by the court in Lowe v. Reynolds to hold that the non-compete agreement violated public policy could be appropriately applied to many ongoing clinical treatment cases involving social workers’ clients with mental illness or other disabilities.  Admittedly, Lowe is an unusual case, in that the court addressed the needs of specific patients in a “public interest” analysis, rather than focusing on the need for economic protection for the physician’s practice and whether the non-compete language was too restrictive in its application.  Most courts analyze the public interest argument in broad or general terms, evaluating the number of practitioners in a geographic region and the impact which enforcement of the clause would have on the availability of practitioners in that area (See Calhoun v. WHA Med. Clinic, PLLC, 2006; Medical Specialists v. Sleweon, 1995; Iredell Digestive Disease Clinic, P.A. v. Petrozza, 1988; Odess v. Taylor, 1968; and Tarr v. Stearman, 1914).  Lowe has since been followed by New York courts in holding that a pediatrician’s non-compete clause was invalid (Oak Orchard Community Health Ctr. v. Blasco, 2005).  Time and place limitations in non-compete clauses must also be reasonable for a court to uphold an agreement.

The enforceability of a non-compete provision as against a social worker who has already established a therapeutic alliance with a client may be considered analogous to the physician or attorney scenario in which courts have found such covenants to violate public policy by limiting the client’s choice (see, NASW Code of Ethics, Standard 1.02, Self-Determination, 2008).  For example, in Dwyer v. Jung (1975), a law partnership sought enforcement of a non-compete clause that was part of a partnership agreement and which prohibited the partners “from doing business with a client designated as that of another partner for a period of 5 (five) years.” Especially pertinent for NASW members is the fact that this case involved an analysis of the American Bar Association Disciplinary Rules and Code of Professional Responsibility. The court, in finding the restrictive covenant to be void as against public policy, relied heavily on the printed comments to the ethics rules published by the Bar Association pertaining to the right of a client to be represented by the attorney of his choosing.

In Duffner v. Alberty (1986), the Supreme Court of Arkansas ruled that a restrictive covenant in a physician’s partnership agreement was “void and unenforceable because it violates the public policy of this state which prohibits unreasonable restraints of trade.” The court noted that the surgeon (Duffner) had received no training from the partnership, the contract did not relate to the sale of a business and its goodwill, and that Duffner had not made any attempt to solicit his former partners’ patients. The court discussed the fact that Dr. Duffner did obtain the files of twenty-eight of his patients who needed follow-up care from him and did not find this to be incorrect behavior, as it did not involve the patients of his former partners. Two of the former partners’ patients eventually did receive treatment from Dr. Duffner after he formed his own practice and this was seen as inconsequential to the financial interests of the former partnership.

Contract provisions that prohibit competition within a certain geographic radius do not, by definition, prohibit the practitioner from rendering treatment outside that area to current clients. In Renal Treatment Centers v. Braxton (1997), the court permitted continuation of treatment based on the physician’s relationship with his patients and due to the lack of other providers in the area.  Muller v. N.Y. Heart Center Cardiovascular Specialists P.C. (1997), modified an otherwise valid non-compete covenant to permit the physician access to nearby hospitals solely for the purpose of treating current patients, but not for new patients.  In a 2008 Indiana case, Cent. Ind. Podiatry, P.C. v. Krueger, the court narrowed the geographic scope of a noncompetition clause rather than invalidating it entirely. This approach, also known as “blue-lining,” allows courts to invalidate unreasonable elements of a non-compete clause while enforcing the remaining sections of the agreement and has been adopted in a number of states.

When enforcement of a non-compete agreement is sought, the relief requested is usually monetary damages and/or an injunction prohibiting the former employee or contractor from continuing the wrongful conduct.  Damages for breach of a restrictive covenant are often measured by the value of the business lost to the plaintiff-employer (Merager v. Turnbull, 1940). This approach is accepted as a contractual provision in some states so that the provider who is leaving a practice can simply buy their way out based on an agreed-upon financial formula rather than suffer the inconvenience and expense of litigation (see, e.g. Delaware).

Analysis and Conclusions

The courts will consider a variety of factors in determining whether to enforce covenants not to compete. States that have adopted the NASW Code of Ethics as part of their social work statute or regulations provide a strong legal framework for judicial recognition of professional social work standards in cases interpreting non-compete agreements.  In other states, the protections that have been accorded to the social worker-client relationship by the U.S. Supreme Court in Jafee v. Redmond would help to support an argument that the special relationship between a psychotherapist and client should not be unduly limited where continuing care is desired by the client and is therapeutically appropriate.

If negotiation of employment contract terms is possible at the time of hiring, a social worker may consider the option of writing a simple addition to the contract which reads, “Any provision of this contract with violates the NASW Code of Ethics will be considered invalid and unenforceable by the parties.”  This should be signed and dated, whether added to the main body of the original contract or as an addendum, and should provide space for the signature and date of the other party to the contract.

If the employment contract is offered on a “take it or leave it” basis, the social worker may consider the possibility of simply inserting the language above as an additional paragraph or a similar statement at the end of the non-compete clause and signing the document.  If employment commences and the employer does not protest the changed contract language it can be presumed that the agency had knowledge of the additional provision and agreed to it.  In the event of a future conflict, this allows the social worker a valid defense in the event of threatened legal actions or litigation.

Several approaches to legal reform regarding non-compete clauses in health care have been posited.  One position suggests differing levels of scrutiny so that “courts must evaluate the strength of a [practitioner]-employee’s claim for nonenforcement of a restrictive covenant on a content-specific basis, providing greater scrutiny at times, while applying a normal rule of reason standard to other cases” (Wilborn, 2006).  Perhaps close scrutiny could be applied to any restrictions that impact the right of current clients to continue treatment with the practitioner of their choosing and a business-oriented rule of reason regarding other aspects of health care practice.  Another suggested reform is to encourage states to adopt language similar to Massachusetts and prohibit the use of non-compete clauses in each of the mental health professions (Chase, 2011).  A third approach, which could be implemented concurrently with legal reforms, would be for each profession to adopt a clear standard on the use of non-compete clauses within its ethical code as the legal field has done.

Additional Resources

State Law Charts on Covenants Not to Compete and Customer Lists. American Medical Association, Annotated Model Physician Employment Agreement, 44-49 (2008).  Available at http://www.ama-assn.org/ama1/pub/upload/mm/395/employment_agreement.pdf

Beck, R. (2010).  Employee Noncompetes, A State by State Survey.  Available at http://www.beckreedriden.com/wp-content/uploads/2010/12/Noncompetes-50-State-Survey-Chart-12-12-2010.pdf

References

Ann. Laws Mass. GL ch. 112, § 135C (2008).

Cal. Bus & Prof Code § 16601 (2012).

Calhoun v. WHA Med. Clinic, PLLC, 178 N.C. App. 585, 632 S.E.2d 563, 2006 N.C. App. LEXIS 1654 (2006).

Cent. Ind. Podiatry, P.C. v. Krueger, 882 N.E.2d 723 (Ind. 2008).

Chase, M. (2011).  Student note:  help is on the way (out):  prohibiting the use of noncompetition agreements in the mental health profession.  49 Fam. Ct. Rev. 831, 840 n95 (Ala. Stat. § 8-1-1(a) (1975); Cal. Bus. & Prof. Code § 16600 (West 1987); Fla. Stat. Ann. § 542.33(1) (West 1988); La. Rev. Stat. Ann. § 23:921(A) (West 1985); Mont. Code Ann. § 28-2-703 (1992); N.D. Cent. Code § 9-08-06 (1987)).

Colo. Rev. Stat. Ann. 8-2-113(3) (West, 2007).

Comprehensive Psychology System, P.C. v. Brett Prince, Ph.D., 375 N.J. Super. 273, 867 A. 2d 118 (2005).

Del. Code, Tit. 6, § 2707 (2012).

Duffner v. Alberty, 19 Ark. App. 137, 718 S.W.2d 111 (1986).

Dwyer v. Jung, 133 N.J. Super. 343, 336 A.2d 498, 499, aff’d, 137 N.J. Super. 135, 348 A.2d 208 (1975).

Estlund, C.L. (2006).   Article:  between rights and contract:  arbitration agreements and non-compete covenants as a hybrid form of employment law.  155 U. Pa. L. Rev. 379, 384.

Intermountain Eye & Laser Ctrs., P.L.L.C. v. Miller, 142 Idaho 218, 225-226 (2005).

Iredell Digestive Disease Clinic, P.A. v. Petrozza, 92 N.C. App. 21, 373 S.E.2d 449, affd, 377 S.E.2d 750 (1988).

Lowe v. Reynolds, 428 N.Y.S.2d 358 (1980).

Karlin v. Weinberg, 77 N.J. 408 (1978).

Medical Specialists v. Sleweon, 652 N.E.2d 517 (1995).

Merager v. Turnbull, 2 Wash. 2d 711, 99 P.2d 434 (1940).

Muller v. N.Y. Heart Center Cardiovascular Specialists P.C., 656 N.Y.S.2d 464 (A.D.3 Dept. 1997).

National Association of Social Workers, NASW Code of Ethics, Standard 1.01 (2008).

Oak Orchard Community Health Ctr. v. Blasco, 8 Misc. 3d 927 (N.Y. Sup. Ct. 2005).

Odess v. Taylor, 282 Ala. 389, 211 So.2d 805 (1968).

Reamer, F.G. (2006).  Ethical standards in social work, A review of the NASW Code of Ethics 104-105 (2nd edition).

Renal Treatment Centers v. Braxton, 945 S.W.2d 557 (Mo.App. E.D. 1997).

Schwab, A.J. (1987).   Employment contracts and covenants not to compete 1 in Reed, Smith, Shaw & McClary, How to protect your investment in technology and employees through contracts and litigation, citing Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118, 225 A.2d 288 (1967); Orkin Exterminating Co. of Raleigh, Inc. v. Griffin, 258 N.C. 179, 128 S.E.2d 139 (1962); Arthur Murray Dance Studios, Inc. v. Witter, 62 Ohio L. Abs. 17, 105 N.E. 2d 685 (1952); John G. Bryant Co. v. Sling Testing and Repair, Inc., 471 Pa. 1, 369 A.2d 1164 (1977).Sanchez, J. (2010).  Survey and article on Florida law:  A survey of physician non-compete agreements in employment under Florida law. 35 Nova L. Rev. 63, 74.

Sanford v. Castleton Health Care Ctr., L.L.C., 813 N.E.2d 411 (2004), citing 17 C.J.S. Contracts § 10.

Tarr v. Stearman,264 Ill. 110, 105 NE 957 (1914).

Wilborn Malloy, S.E. (2006).  Article:  physician restrictive covenants:  the neglect of incumbent patient interests, 41 Wake Forest L. Rev. 189.

The information contained in this article is provided as a service to NASW members and the social work community for educational and information purposes only and does not constitute legal advice. We provide timely information, but we make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this article and associated Web sites. Transmission of the information is not intended to create, and receipt does not constitute, a lawyer-client relationship between NASW, LDF, or the author(s) and you. NASW members and online readers should not act based on the information provided in the LDF article or Web site. Laws and court interpretations change frequently. Legal advice must be tailored to the specific facts and circumstances of a particular case. Nothing reported herein should be used as a substitute for the advice of competent counsel.

Speak Your Mind

*