Chapter 2 Advertising & Solicitation

In Sobol v Capital Management Consultants, Inc., 102 Nev. 444, 726 P.2d 225 (1986), the Nevada Supreme Court provided some guidance concerning advertising, when it considered one companys usurpation of anothers business name. The Court looked at such factors as the degree of public confusion created, the infringement on one companys goodwill, and the damage to the original companys reputation with creditors. The Court sustained an injunction against a second company falsely identifying itself as Physicians Medical Center, a form of misleading advertising. Although not specifically addressing advertising per se, the issue in Sobol was related to possible forms of false or misleading advertising (such as the name of a business), and therefore may be of value when looking at the extent to which physicians may advertise.

Chapter 630A of the Nevada Revised Statutes (NRS) deals with homeopathic medicine. In a manner similar to Chapter 630 (regulating medical physicians and surgeons), NRS 630A.360 makes false advertising a ground for disciplinary action or the denial of licensure for, specifically, anyone advertising the services of an unlicensed person in the practice of homeopathic medicine. NRS 630A.360(5). There is no specific mention of false or misleading advertising. Presumably the prohibitions of physicians NRS 630.304 apply equally as well to those practicing homeopathic medicine. Because NRS 630A.360 deals only with advertising the services of unlicensed persons, a failure to perform a thorough check of the qualifications of an individual included in the advertising scheme would likely not excuse a licensee attempting to avoid disciplinary action.

SOLICITATION & RESTRICTIVE COVENANTS OF EMPLOYMENT

The term solicitation suggests a proactive effort to identify particular individuals as potential clients, then aggressively pursuing those individuals with promises of better service and care. When a physician leaves one clinic or hospital to start his or her own medical practice, the physician may consider soliciting former patients.

One way to restrict a physicians ability to acquire patients is through the use of contract clauses known as restrictive covenants of employment. Restrictive covenants are designed to prohibit solicitation, and in many cases, to limit the geographical area in which a physician can practice for a period of time, and to prohibit the former employee from working for certain organizations. NRS 613.200 allows a former employer to restrict a persons (to include a physicians) opportunities for employment, as long as the restrictive covenant is supported by valuable consideration and is otherwise reasonable in its scope and duration. NRS 613.200(2)(b).

This means that a physician or other professional can contract away his or her right to solicit clients or establish a business in competition with a former employer. The limiting factors are that valuable consideration must be involved (a contract right), and the agreement must be reasonable in overall scope (geography), as well as in duration (period of enforcement). In Jones v. Deeter, 112 Nev. 291, 913 P.2d 1272 (1996), the Nevada Supreme Court upheld the validity of restrictive covenants used to limit solicitation and restrict competition. As long as the restrictions to practice are reasonable and tied to some form of consideration, as discussed in Deeter, physicians or hospitals may require a physician, as a condition of employment, to sign an agreement limiting that physicians ability to acquire patients for a new practice.

The author is familiar with an agreement, held valid, which restricted the geography to five miles and time to two years. This agreement also had a buy out liquidated damages provision wherein the physician wishing to open his own practice within five miles during the first two years of termination of employment could do so by the payment of $250,000 in contractually agreed liquidated damages (for breach of contract).

Thus, a physician employee of a city of Las Vegas located medical practice may well be able to open, immediately upon termination of his or her employment, a medical practice in Henderson because it would be greater than a five mile contractual limitation. An attempt by the employer contractually to extend the scope of the geography to greater than five miles to say, twenty miles, would likely be found excessively restrictive and held invalid.

Potential employers of physicians and potential employee physicians are hereby advised to consult with a local attorney for advice on the likely judicial tolerance of the scope of a covenant not to compete contractual limitation. Needless to say, the cost of this advice will be a fraction of the cost of attempting to litigate a questionable restrictive covenant.

CONCLUSION

Advertising can be a valuable source of new patients, as can the direct solicitation of patients with whom the physician has formed a previous relationship. Care must be taken to ensure that the advertising is accurate in its content, and easily understood by the public at large.

A prospective physicians employer may attempt to prevent such solicitation of practice patients and/or to prevent a former employed physician from establishing a competing medical practice by requiring the prospective physician employee to sign a restrictive covenant or agreement not to compete. Courts generally oppose medical practice restrictive covenants under the presumption such covenants restrict free trade. However, a medical practice restrictive covenant may be upheld if it is accompanied by valuable consideration and is reasonable as to duration (time) and geography (distance). [Valuable consideration is a critical element of any valid contract. An employed physician cannot be required to sign a restrictive covenant without some consideration (usually compensation). Without consideration, a restrictive covenant is not enforceable.]

Many authorities suggest the inclusion of a clause providing for a reasonable amount of liquidated damages. These authorities feel that judges will be more likely to find the contractual terms valid when there is a reasonable sum certain remedy expressed in the contract for a breach of that contract. The existence of a liquidated damages provision may well discourage a formerly employed physician from opening a competing practice which breaches the scope of the restrictive covenant since the amount of the liquidated damages would likely render the start-up practice un-tenable financially.

Potential employers of physicians should consult a knowledgeable local attorney for advice on drafting restrictive covenants. Potential employee physicians should consult an attorney for an opinion as to the likely validity of the restrictive covenants terms and scope, and for advice as to possible options.