I recently learned of a law firm in Canada which specializes in representing dentists…now there is a niche legal practice. The law firm, DMC Law, is located in Toronto, and its website recently posted a discussion about the interaction between Canadian noncompete law and the practice of dentistry.
This discussion got me to thinking about noncompete law in Virginia and its impact on practicing dentists. To start, the analysis for dentists practicing in Virginia is the same as it is for salesmen, doctors, chefs, financial advisers, television/radio personalities, etc. The test is:
(1) Is the restraint from the standpoint of the employer reasonable in the sense that it is not greater than is necessary to protect the employer in some legitimate business interest? (2) From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood? (3) Is the restraint reasonable from the standpoint of a sound public policy?
I did a quick search of reported legal decisions in Virginia and could only find one, Graves, DDS v. Ciraden, Inc., decided by the Fairfax County Circuit Court in 2004. In Graves, a dentist entered into two separate agreements with Ciraden, Inc. Both agreements (a Services Agreement and a Non-Competition and Confidentiality Agreement) contained restrictive covenants.
Pursuant to the Agreements, the dentist received over 500,000 shares of Ciraden stock, as well as leased dental equipment, leased office space, and administrative, marketing, and personnel support. In return the dentist agreed to operate a dental practice for 30 years and agreed to a Non-Competition and Confidentiality Agreement.
The noncompete language in the Agreements prohibited competition for a period of 20 years within a radius of 6 miles from any of Ciraden’s offices. The Agreements also contained a liquidated damages clause which requires a payment of $ 200,000 if the dentist breached the noncompete provisions in the Agreements.
The court never ruled upon the legality and enforceability of the noncompete language, as the issue before the court was a legal technicality on whether the parties had the legal right to contest the issue.
My Take: There is no reported result for this case but, if I wore the Judge’s robe in that case, I would find the agreement totally unenforceable under Virginia law. You cannot prohibit competition for 20 years! In my opinion, no court in Virginia would enforce such an outrageous provision.