Intellectual property: It's worth protecting
Keeping valuable information from competitors
You operate an independent home care company in a highly competitive market. In addition to national companies, several other sole proprietorships and large hospital-based agencies operate in your area. Managed care is sweeping through your market, and organizations without contracts will be locked out.
You repeatedly attempt to contract with the two largest managed care companies. But they tell you their home care provider panel is closed; they are no longer issuing general home care contracts. However, they may be interested in specialty programs.
Working closely with Mary Manager, you review your existing patient population, research clinical literature and decide to develop a psychiatric nursing specialty program to get your foot in the door at the two managed care companies. Along with two senior field staff members, you and Mary draft special assessment forms, care protocols and patient and staff education materials. You estimate the combined effect of these efforts will reduce inpatient admissions and emergency treatment by 25% in the first year of a contract. No other provider in your market has such a program. You pitch it to both the large managed care companies and win contracts.
Not long after you receive the contracts, Mary Manager leaves your company and joins one of your main competitors. Within a few months, you discover that this organization has landed a psychiatric nursing program contract strikingly similar to the one you and Mary worked so hard to develop. Suddenly, your booming new business grinds to a screeching halt.
Such a scenario, once unheard of in home care, is becoming increasingly common, sources say. "There is a lot of consolidation in the market now among managed care organizations, suppliers, and providers. There are fewer but larger, more powerful competitors," says Lee Doty, chair of the health law group, Drinker, Biddle and Reath, LLP, a Philadelphia-based law firm. As the process of consolidation continues, competitive forces will be greater, as will a company's need to guard proprietary information, Doty says.
With few assets, no proprietary manufacturing processes, equipment, or inventions, intellectual property may be one of private duty providers' major competitive weapons. Protecting your company's know-how, product and program developments, trademarks, and internally developed software may seem impossible, but a few measures may significantly lower the risk of such items falling into your competitors' hands, Doty reports.
Three types of restrictions cover the employee-employer relationship and associated competitive issues:
· Confidentiality.
During the course of their employment, employees deal with and have access to a variety of proprietary and confidential information, including patient records, contracts, financial statements, forms, and care protocols. Confidentiality agreements prevent employees from disclosing such information to others, including subsequent employers.
· Nonsolicitation.
Nonsolicitation clauses prevent your former employee from inducing a current employee to join the former employee at her new place of work. Such agreements may also prevent both former employees from wooing patients and current clients from privately hiring current employees (see Private Duty Homecare, April 1998, p. 56).
· Noncompetition.
Noncompetition provisions restrict an employee's ability to join competitors after leaving your employment. They generally have three levels of restriction: geography, distance, and time. The appropriate degree of restriction depends on the market definition and state law. Some states do not enforce noncompetition agreements at all, Doty notes.
"Generally, the more sophisticated and highly paid the position, the more severe the restriction. In theory, the employee is getting compensated for the loss of [not being immediately able to perform the same job elsewhere]," says Doty. "Sometimes, the market is national, and the restrictions may last two or three years."
Employees fear noncompetition contracts
Many home care companies routinely use confidentiality and nonsolicitation agreements, or at least have policies pertaining to these issues. Noncompetition agreements are much less common and much more threatening to employees. Prospective employees may resist signing such an agreement because they fear not being able to work again. But the idea is "not to restrict employment, but to at least deter them from joining competitors or prevent former employees from soliciting clients or employees" for a period of time if they do leave, says Doty.
While private duty owners and senior managers may be accustomed to noncompetition clauses as part of broader employment contracts, few home care companies focus such restrictions on field staff. But "if a home care nurse is following a copyrighted protocol, she can be prohibited from using that protocol elsewhere. And the noncompete doesn't have to involve special information. It may include protectable business materials," says Doty. Sometimes companies intend their noncompetition clauses only to squeeze investment out of field staff who may stay on board longer when they fear a lawsuit, she adds.
Depending on the circumstances, it may be reasonable to prohibit a field nurse from working with another home care company in your metropolitan area for a short time, six months to a year, for example.
Is program copying really a loss?
A manager taking a program you jointly developed to another company is "something that could happen anytime. But it's one thing to have a program. Its another to implement it. By the time someone's implemented it, we've already moved on to the second version. I never really made it an issue. I don't stop long and look backward," says Karen Gunter, RN, MSA, chief operating officer of Melmedica Children's Healthcare in Country Club Hills, IL.
That strategy may work, but Doty cautions against assuming your market is moving so quickly that competitors would not gain from your experience. Employees' potential marketability is also higher when the competitive information they may bring is current and therefore of more interest to a competitor, she adds.
Consider your market
Consider both the overall market and your position within the market when determining how strongly to structure and vigorously pursue employment restrictions. (See sample agreement, p. 98.) "Its really a judgment call. If you are a start-up or small company and can't pay as much as some of your competitors, your competitors are not [implementing such restrictions], and you fear not being able to get the best employees," then you may want to very narrowly circumscribe the restrictions or soft-peddle them through policies, Doty advises. "As the company grows, and you have more to loose and therefore more to protect, and you can still recruit [high-caliber employees], then you may want to have stronger language."
Introducing noncompetition agreements to existing employees can be tricky, but is doable, says Doty. Normally a company offers additional consideration, such as a higher salary or a new position, in exchange for obtaining the restriction. When this is not possible, you may still enact noncompetition agreements by giving existing employees long-term (for example, six months) notice that you intend to do so. This enables them to prepare for the new restriction or move on to another company if they do not want to comply.
Agreement enforceability may come down to a court's interpretation, or the threat of court interpretation. The potential of a lawsuit is fearful enough for many employees to not consider violating agreements. When such disputes do enter courtrooms, narrow restrictions generally win over broader ones, Doty advises.
While some providers may be reluctant to require employment restrictions, they are fast gaining popularity in today's marketplace, where companies struggle to maintain a foothold. "Intellectual property may be all the home care company has," says Doty.
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