They make sense in some circumstances. Take a private medical practice, for instance. Two physician/owners are looking to expand so they recruit an associate. This new physician employee, often a new grad, is hired with a guaranteed salary for 2 years and often a considerable signing bonus. In turn the practice gets a new doc that is typically going to take a year or more to ramp up production since they are new to the area and unknown to the referral base. Additionally, the process of getting a new doc reimbursed by insurance plans is a nightmare of burocracy and delay/deny. So, the practice is taking on significant overhead with the hope that the associate will be a long term, productive employee or even a partner. If not for the non-compete clause, the new doc essentially could get his first 1-2 “lean years” subsidized by the practice, then quit and open up his own competing practice across the street, taking his patients with him. If this ruling sticks, I predict that employment contracts are going to shift away from salary to pay-for-production from day one. That’s going to be tough for new docs looking for stability early in their career.
Great post. In my STEM field a NC agreement is rarely used outside an ownership contract. Senior managers agree to the NC terms as a condition of their ownership stake in the company. I can’t imagine the FTC ruling would ever cover this type of arrangement.
I don’t know, my thought is if you’re primary concern is what happens when they leave you’re setting up a situation where they SHOULD leave. If you want your new doctor to stick around and not hang his shingle elsewhere then be a place worth staying at. Instead of being punitive be supportive. Give them opportunities to grow with in. Partner paths. Expansion paths.