Who's Afraid of A Little Competition?
How veterinary companies lock down employees through the legal system
Earlier this week, I wrote about the shortage of vet school faculty that is providing me with steady income during my career transition. Today, I’m going to talk about why I’m living this itinerant lifestyle in the first place. The short story is I am bound by restrictive covenants that make it almost impossible for me to work in my field as a clinical pathologist. Let’s discuss some examples that illustrate the case law here, because sadly, I am far from alone.
Before I begin I want to say that my intent with this article is a good faith effort to educate students and early-career professionals about complicated business and legal issues. I worked hard over many months to ensure everything in this article is factually true to the best of my knowledge based on publicly available sources and legal advice
Restrictive Covenants
I have had to sign non-compete agreements for multiple previous employers, and as a result, my options for working as a pathologist in the private sector are severely restricted. What exactly are the provisions in question? As you’d imagine, I am not able to discuss the specifics of my situation due to my non-disclosure agreements and would never knowingly share confidential information. However, what I can do is share some excerpts from public record legal documents about recent employment lawsuits in the veterinary diagnostic sector.
Undue Hardship
In January and February 2022, Graham Bilbrough (an associate director and fellow) and Melissa Pointe (a product manager) resigned from IDEXX and went to work for Antech. They were quickly sued for breaching their non-competes and disclosing trade secrets. The details of their non-compete can be found in the lawsuit for Melissa LaPointe:
Wow, a 2-year non-compete that is not geographically restricted (ie. global) and covers virtually any affiliation with any animal diagnostic company! 😳
“But Eric,” you exclaim with disbelief, “surely that’s not enforceable?!”
Well, you’d think so, but…
What happens when a court finds a non-compete overly broad is they implement the so-called “blue pencil” doctrine, whereby they narrow the scope, but don’t throw it out completely. This process, even if it favors the defendant, entails lots of time and expensive legal bills. Big companies know this and rely on the asymmetry in legal and financial resources to scare many employees into compliance.
There are other legal provisions that can be used as a “back door” non-compete of sorts (see the next section on “inevitable disclosure”)
Some courts will even disagree that the provision above is unreasonable:
That judge rejected the motion to dismiss the case at that time. That suit was dropped by IDEXX a few months later.
Inevitable Disclosure
Even when non-compete agreements fail to be enforceable, companies can try to use other legal means to achieve the same end. One tactic is using restrictive covenants governing trade secrets, as in the example of the lawsuit Idexx Labs. v. Bilbrough. As this passage shows, companies don’t even have to accuse an ex-employee of actually retaining or disclosing confidential information, or even threatening to do so. They can merely claim the “inevitable disclosure” doctrine under the Defend Trade Secrets Act of 2016 (DTSA):
The legal theory and application of the “inevitable disclosure” provisions in the DTSA are actually somewhat controversial and do not always succeed. In fact, the magistrate judge in this case ultimately dismissed the lawsuit:
“IDEXX’s claim relied solely on the court applying the inevitable disclosure doctrine. A federal magistrate judge, however, recommended dismissal of IDEXX’s claims, finding the inevitable disclosure doctrine inconsistent with the plain language of the DTSA. Critically, the DTSA allows a court to grant an injunction only “to prevent any actual or threatened misappropriation” provided that the order does not “prevent a person from entering into an employment relationship, and that the conditions placed on such employment shall be based on evidence of threatened misappropriation and not merely on the information the person knows.” 18 U.S.C. § 1836(b)(3)(A)(ii)(I). By contrast, the inevitable disclosure doctrine allows a preliminary injunction on the theory that a person with certain information will necessarily use the information at some point in his or her new employment. According to the court, the DTSA language could not be reconciled with the doctrine and IDEXX’s claims must be dismissed.”
More Precedent
This pair of former employees are not the only ones who have encountered non-compete issues in the diagnostics market…
IDEXX sued Vets First Choice and two former employees in 2018 for violating their non-competes as well as alleged misappropriation of trade secrets. They settled out of court in 2019, leaving the legal questions unresolved
In 2020, Christian Leutenegger and IDEXX clashed over his non-compete when he left for Antech to work on similar PCR assays. I could not find publicly available legal documents about the resolution of this case, but he continues to be employed by Antech
Radioactive
Why do companies go to all this trouble for restrictive legal agreements if they know they won’t hold up in court, at least not in their original form?
Deterrence.
They count on employees being afraid to breach their contracts and get hassled. Even when clients have a strong defense, the legal costs can reach into tens of thousands of dollars, and six-figures is not out of the question if it goes to trial. Most people simply can’t afford to pay that and won’t take the risk.
Setting all of that aside, even if a motivated employee is willing to shoulder the risks and breach their non-compete, that requires other companies to actually hire them. And in my experience, lots of organizations are simply unwilling to chance getting themselves sued and having to pay the exorbitant costs of corporate legal teams to fight it.
I actually did apply to a rival competitor (for a role unconnected to anything I had done at a previous employer) at one point. I had to check a box that asked “Have you previously worked for Company A or Company B?” (I forget the time frame but I think it was the last two years). Of course, I answered honestly—they’re going to find out eventually. I received a rapid auto-rejection form letter by email.
This experience was repeated across the industry. Any business in the private sector even tangentially connected to veterinary diagnostics wanted nothing to do with me.
I was radioactive.
A Pyrrhic Victory
The sad irony is that these restrictive covenants even hurt the companies themselves! For one, it restricts dynamism and the diffusion of ideas across the industry. California is home to Silicon Valley and hundreds of innovative tech and biopharmaceutical companies, yet non-competes are essentially illegal there. It is quite typical for software engineers and scientists to bounce from company to company. Far from seeing this as a threat to their IP, they embrace this as a great way to poach top talent and stay current with the latest new ideas.
On the other hand, what happens when you lock people into an organization they no longer want to work for? They become bitter. They’re less productive. They may low-key sabotage certain initiatives. They bitch to colleagues. It tanks morale. Not a good way to run a business!
In my opinion, ending non-competes is not only the right thing to do, it is also just smart business that will lead to a more vibrant and engaged workforce. You should want employees staying because they like their work and their job, not because they’re deathly afraid of unemployment or lawsuits.
Federal Trade Commission Proposes Ban on Non-Competes
In a bit of good news, the FTC recently proposed a rule banning non-competes, arguing:
“The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” said Chair Lina M. Khan. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
“Research shows that employers’ use of noncompetes to restrict workers’ mobility significantly suppresses workers’ wages—even for those not subject to noncompetes, or subject to noncompetes that are unenforceable under state law," said Elizabeth Wilkins, Director of the Office of Policy Planning. “The proposed rule would ensure that employers can’t exploit their outsized bargaining power to limit workers’ opportunities and stifle competition.”
Before you get too excited, this is simply a proposed rule change, the agency is currently combing through tens of thousands of public comments, and won’t vote on it until 2024. It is also almost certainly going to be heavily litigated in the courts, and could potentially be changed back by future presidential administrations. This is to say that the FTC proposal is an encouraging first start, but not a short term solution or get out of jail card by any means.
What Can I Do?
Reading all of this has probably been a bit distressing and you may be wondering what to do with this information about non-competes. I’m not here to tell you whether or not you should work for any specific organization. What I would relay is some practical advice:
Just say NO to signing non-competes! These agreements only persist because enough employees are willing to sign them. I realize this is easier said than done as we have a heavily consolidated industry with a only a handful of players. However, there are companies out there that don’t insist on non-competes or other provisions
Always read every word of any legal contract you are asked to sign. Ideally, have a qualified employment lawyer (or other counsel based on the type of contract) look over it and provide their advice. Lawyers are expensive and it might be tempting to skip their review and hope for the best, but I’m here to tell you it’s far better to avoid a bad legal situation up front rather than try and salvage it later
Be wary about other provisions that can be used to restrict you without being a formal non-compete clause. Alternatives to non-competes can include—but are not limited to—“claw-backs” or liquidated damages provisions, non-disclosure agreements, non-solicitation agreements, and “no-business” agreements
If you have already gotten locked into a non-compete or other restrictive covenant, definitely seek legal advice for your options. There are also some general legal resources below:
This 2023 Andy Roark podcast episode interviews the lawyer and veterinarian Lance Roasa about the changing landscape of veterinary non-competes
An article by DVM/JD Christopher Allen on what to expect when disputing a non-compete
