Restrictive Covenants in Dental Associate Agreements

November 11th, 2013 by

Restrictive covenants form an integral part of associate agreements and offer a degree of protection in dental law to the goodwill interests of the owner-dentist.

What is a Restrictive Covenant

Restrictive Covenants in Dental Associate AgreementsA restrictive covenant is a contractual promise to refrain from doing something. In the context of an associate agreement, these promises typically take the form of non-competition or non-solicitation covenants.

Non-Competition

Non-competition covenants purport to protect an owner-dentist’s practice against competition by an associate within a stipulated geographic area.  They typically remain in force during the associate/owner-dentist arrangement and for a designated period after its termination.  The enforceability of a non-competition covenant depends upon its reasonableness.  Reasonableness is determined on a case-by-case basis.

In Lyons v. Multari, (2000) 50 O.R. (3d) 526, the Ontario Court of Appeal found that non-competition agreements are generally void. The exceptions will be where the restraint is “reasonable in the interests of the contracting parties and also reasonable in the public interest”. The 3 factors that will be considered are as follows:

  1. 1. Does the employer have a proprietary interest which is entitled to protection;
  2. 2. Are the temporal or geographic restrictions too broad; and
  3. 3. Is the covenant unenforceable as being against competition generally.

The Court stated that non-competition clauses would only be enforced in “exceptional cases” where “a simple non-solicitation clause would not suffice”.

[The complete decision can be found at
http://www.canlii.org/en/on/onca/doc/2000/2000canlii16851/2000canlii16851.html.

Non-Solicitation

In a non-solicitation covenant, the associate agrees to not solicit the patients or employees of the owner-dentist’s practice during the term of their arrangement and for a designated period after its termination.

Of note is the Ontario Court of Appeal decision in Smilecorp Inc. v. Pesin, 2012 ONCA 853, wherein the Court upheld a non-solicitation covenant made in the context of a management agreement.  The decision indicates that a non-solicitation agreement, drafted in light of various practice advisories and regulations, can be valid and enforceable.

[The complete decision can be found at
http://www.canlii.org/en/on/onca/doc/2012/2012onca853/2012onca853.html.

If you would like more information regarding legal matters such as dental law and restrictive covenants, please contact an Toronto dental lawyer.


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