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Three Nurses Challenge Former Employer's Noncompete Agreement

Non-compete agreement

You may think that contract law does not affect your nursing practice, but that's far from the truth. In fact, contract law permeates nursing practice in many ways. For example, you can use contract law to challenge an employer's breach of an express or implied employment contract if you were terminated from your position. Another area where contract law and your practice can often intersect is when an employer requires you to sign a noncompete agreement (also known as a covenant not to compete), either as a stand-alone document or as part of an employment contract. An employer sees a noncompete agreement as helpful in decreasing competition after an employee's employment period is over -- either by keeping you from sharing information with a new employer about your former employment or enticing your former colleagues to join you at your new place of employment. However, many feel that such an agreement is in direct conflict with the valued U.S. principles of the right to make a living and free enterprise. In the following case, three Wyoming RNs challenged the noncompete agreement they signed with their former employer, a home health agency, and became employed with a competitor.

Details on the Noncompete Agreement

The home health agency where the RNs worked required employees to sign a written noncompete agreement, which stated that:

  • They were at-will employees.
  • The agency had the right to hire or fire them at its sole discretion.
  • Post-employment restrictions were in place, including "directly or indirectly" competing with the business by providing home healthcare services "similar or to which could be substituted for [its] services."
  • Restrictions were effective for 24 months after termination of employment and applied "in an area covering in all directions 50 miles from the office or locations" where employees worked.
  • Agency information was to be treated confidentially.
  • There was to be no solicitation of employees to work for a competitor.
  • The agency was authorized to seek an injunction if conditions were violated.

Two of the RNs were already employed by the agency when they were asked to sign the noncompete agreement. The third RN signed her agreement when she was hired. After leaving this home health agency, all three RNs went to work for one of the agency's home health competitors. The former employer filed a lawsuit claiming the nurses violated their respective noncompete agreements and asked the court for a preliminary injunction prohibiting the RNs from working at its competitor during the litigation. The nurses contested the injunction, arguing that the covenant not to compete was unenforceable. The district court ruled that the agreement was "valid and enforceable" and prohibited the RNs from working at the competitor's agency. The RNs filed an appeal of the ruling.

Appellate Court Rules in Nurses' Favor

The appellate court carefully pointed out state law and court decisions surrounding covenants not to compete. Because freedom to contract and to work are in conflict with a covenant not to compete, a court must strictly interpret and closely examine any such covenant. If a court determines that these principles are hindered, the restriction to compete must be declared void unless such a restriction is necessary for the reasonable protection of the employer. A covenant not to compete is valid and enforceable only if it is:

  • In writing
  • Part of a contract of employment
  • Based on reasonable consideration (offering and accepting something of value)
  • Reasonable in duration and geographic limitations
  • Not against public policy

Additionally, such an agreement is supported by consideration when it is agreed to "contemporaneously" with the employment itself. Here, the court held that the two RNs who signed the agreement after being employed by the agency for some time were not given consideration. Separate consideration, in the form of a raise in pay or a promotion (as examples) is required. Continued employment is not adequate consideration. Even though the third RN signed her agreement at the time of her hiring, which would satisfy the consideration requirement, the court evaluated the other factors required for an agreement not to compete to be valid and enforceable. Specifically, the court examined whether the covenant not to compete violated public policy. Although the trial court held that the agreement did not violate public policy, it failed to evaluate if the agreement was a "reasonable restraint on trade." The court opined that the agency failed to prove that the employer's trade secrets, confidential information communicated by the employer to the employee, or any other "special interest" subject to the agreement justified that it was a reasonable restraint on trade.

The court emphasized that an employer may use a non-compete agreement "to protect itself from improper and unfair competition from a former employee, but it 'is not entitled to protection from ordinary competition'."

Last, the trial court abused its discretion by not allowing a witness for the RNs to testify about how the injunction it granted might harm the public. The case was reversed and remanded to the trial court.

Implications for You

The outcome of the case is unresolved since it was sent back to the trial court for further proceedings. Even so, this case is a good example of an unenforceable covenant not to compete. Keep in mind that this case was decided in Wyoming, where home health services are scant. Prohibiting the three RNs from working at a competitor's agency could directly impact the availability of such services to Wyoming citizens and are sorely needed in rural areas in particular. However, the district court did not allow any evidence about this impact. Moreover, the trial court did not evaluate the duration of the noncompete agreement (24 months) and its prohibition of the RNs working within 50 miles from the former employer's office or locations where the RNs worked. Such a broad area of exclusion would essentially result in the RNs not being able to practice home health nursing in most of Wyoming for two years. Relocation would most likely be required. It is important to note that in some states, unlike Wyoming, signing a noncompete agreement is not required to be done at the time of hiring. To get an idea of how your state handles the signing of a noncompete agreement, click here. If you are asked to sign a noncompete agreement, either as a stand-alone document or as part of an employment agreement, seek an opinion from a nurse attorney or attorney who practices employment law and represents employees. The attorney can advise you about its validity and enforceability by evaluating the essential elements is covered in this blog.

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