Non-compete agreements have long been a standard feature in dental practice sales and IDSO (Invisible Dental Support Organization) partnerships. These agreements are designed to protect the buyer’s investment by preventing the seller from opening a competing practice nearby for a specified period. However, recent regulatory changes and evolving industry practices have changed how non-competes are used and enforced. This article explains the current landscape of non-compete agreements in IDSO contracts and what both sellers and buyers need to know.
The Basics of Non-Compete Agreements in Practice Sales
A non-compete agreement, also known as a restrictive covenant, is a contract clause that restricts a seller from practicing dentistry within a defined geographic area and time frame after the sale of their practice. In the context of IDSO partnerships, these agreements are typically included to ensure the seller does not undermine the value of the business by competing directly with the new owners.
Key elements of a non-compete agreement generally include:
- Duration: Usually one to two years post-sale.
- Geographic Scope: Often covers the practice’s market area, such as a set radius (e.g., 10–20 miles).
- Public Interest: The agreement cannot be so broad that it negatively impacts access to dental care in the community.
Recent Changes: The FTC Ban and Its Exceptions
In April 2024, the Federal Trade Commission (FTC) announced a landmark rule banning most non-compete agreements in employment contexts, including the dental industry. However, there are crucial exceptions that directly impact IDSO transactions and practice sales.
Key points:
- The FTC rule does not apply to non-compete clauses entered into as part of the sale of a business, such as when a dentist sells their ownership interest or all or substantially all of a dental practice’s assets.
- Buyers of dental practices, including IDSOs, can still include reasonable non-compete provisions in purchase agreements to protect their investment after the sale.
- The ban primarily affects non-competes in employment contracts, not those tied to the sale of a business.
This means that, despite the broader ban, non-compete agreements remain enforceable and common in IDSO partnership contracts and dental practice sales.
What Makes a Non-Compete Enforceable?
For a non-compete agreement in an IDSO contract to be enforceable, it must be:
- Clear and Reasonable: The terms should be specific about duration and geographic scope.
- Not Overly Restrictive: The agreement should not be so broad that it prevents the seller from earning a living or unduly limits patient access to care.
- Aligned with Public Interest: Especially in rural or underserved areas, courts may scrutinize non-competes that could harm community access to dental services.
It’s also common for these agreements to include a non-solicitation clause, which prevents the seller from actively reaching out to former patients or staff to join a new practice.
Special Considerations in IDSO Partnerships
IDSO transactions often involve complex contracts and negotiations. Non-compete agreements in these deals are tailored to protect the buyer’s interests while allowing the seller to transition smoothly. The specifics—such as the length of restriction and the geographic area—are typically negotiated and should reflect the realities of the local market and the seller’s future plans.
Because IDSOs are sophisticated buyers, it’s critical for sellers to review non-compete terms carefully and consult with legal and financial advisors before signing. The right balance ensures the agreement is enforceable and fair to both parties.
What Sellers and Buyers Should Do
- Sellers: Before agreeing to a non-compete, assess your post-sale plans. If you intend to continue practicing, ensure the restrictions are not overly broad for your goals.
- Buyers/IDSOs: Use non-compete agreements to protect your investment, but keep terms reasonable to avoid legal challenges or regulatory scrutiny.
- Both Parties: Work with experienced advisors to negotiate terms that are clear, reasonable, and compliant with the latest regulations.
Non-compete agreements remain a vital part of IDSO contracts and dental practice sales, even as employment-based non-competes face new restrictions. Understanding the current legal landscape and negotiating fair, enforceable terms will protect both sellers and buyers and ensure a smooth transition in practice ownership.
Are you considering an IDSO partnership or practice sale? Contact us for expert guidance on non-compete agreements and contract negotiations to protect your interests and ensure a successful transition.
