Goodwill Protection from a practice purchaser’s perspective – practice restraints and non-solicitation of patients/clients and employees

A major asset of a practice is the practice owner’s valuable Goodwill. Purchasers are entitled to reasonable protection to ensure the Goodwill they are purchasing is preserved. The practice sale agreement needs to contain the usual cascading practice restraint clauses, non-compete and non-solicitation of patients/clients and employees clauses.  The key questions Whitehead Legal ask our practice purchaser clients are:           

  • What is the practice owner prepared to provide and will it adequately protect you?

  • Do the proposed restraints appropriately cover non-solicitation of patients/clients and employees? The period of restraint in years and geographical distance in kilometres, enforceability and reasonableness are critical to the restraint clauses.

  • Are there any key contractors/employees you seek to restrain? Have the existing contractor/employment agreements been checked to ensure their restraints are properly drafted and what if there are no written agreements in place?

  • Does the practice owner have another practice? Is it close by?

  • Is the practice owner of retiring age?

A practice sale agreement with enforceable restraints means a purchaser has made every endeavor to protect the valuable Goodwill he/she is acquiring from the practice owner. With appropriate drafting, the practice owner agrees to be contractually restrained from practising within the restraint period/distance defined in the sale agreement AND not to actively solicit practice patients/clients or employees. This is a must.

Practice restraints and non-solicitation of patients and employees provisions in sale agreements need to be reasonable and they need to be appropriately drafted to be enforceable by a purchaser.  Without appropriately drafted restraints, a purchaser may unfortunately be wide open to sabotage and weakening/diminution of the valuable Goodwill he/she has purchased in the event that the former practice owner or employee set up a rival practice.  

It is in every purchaser’s best interest to ensure a sale agreement contains proper and enforceable and reasonable restraint clauses. Note the drafting of these clauses and their enforceability may differ from state to state – best discuss the next steps with your lawyer.   

Watch our Blogs for commentary on  Proper Due Diligence – What a practice purchaser needs their lawyer to find out.