Three Nurses Challenge Former Employer’s Noncompete 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.