December 1998 Bulletin

State restrictions on restrictive covenants

Alabama, Massachusetts-Prohibit any form of restrictive covenant in medical practices, whether in an employment situation, a partnership agreement or as a term in a buy/sell agreement.

California, Montana, North Dakota, Oklahoma-Prohibit employment-related covenants, but permit them in connection with the sale of goodwill associated with an ownership interest in a practice.

Louisiana-Prohibits employee covenants, except where the employer has provided substantial training and advertising beyond the normal upkeep, and even then only in a limited area for not more than two years; covenants involving partnerships and/or the sale of goodwill are permitted.

Delaware-Does not permit covenants that prohibit competitive practice, but allow "liquidated damages" and "nonsolicitation" agreements.

Other states, while permitting covenants, have their own rules, which have developed through court decisions or direct legislation.

Source: Sandra E. D. McGraw, JD, vice president of The Health Care Group®

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