This case suggests that a restrictive covenant barring dentists from taking patients with them when they leave a practice may not be enforceable if it applies to patients the dentist knew before joining the practice.

The case in question, decided in April by the First District of the Appellate Court of Illinois, involved a lawsuit filed by the Com-Co Insurance Agency against a former employee, William Abplanalp, and his new employer, Service Insurance Agency.

Com-Co alleged that Mr. Abplanalp violated a restrictive covenant by soliciting business for Service Insurance from friends of his who were also clients of Com-Co.

At the time Mr. Abplanalp went to work for Com-Co, he signed a restrictive covenant providing that for three years after he left the company, he would not use Com-Co’s client lists and would not sell a competing company’s services to Com-Co customers.

However, after Mr. Abplanalp left Com-Co and began working for Service, he sold insurance to a number of relatives and friends he had known before he began working for Com-Co—people who previously had purchased insurance through Com-Co.

In contrast, Mr. Abplanalp refused to sell insurance through Service to several Com-Co clients who sought him out. Mr. Abplanalp had met these people while working for Com-Co and considered them Com-Co’s protected clients under the terms of the restrictive covenant.

Com-Co sued Mr. Abplanalp and Service, charging that the restrictive covenant had been breached and that Service had induced the breach. Com-Co sought about $36,000 in actual damages and $100,000 in punitive damages. The trial court referred the matter to arbitrators, who awarded Com-Co a net of $1,232.86. Com-Co rejected the award.

The parties then moved for summary judgment before the trial court, which held that Com-Co had no protectable interest in customers who bought insurance through Com-Co because those customers had been friends of Mr. Abplanalp before he went to work for Com-Co. The court granted summary judgment in favor of the defendants with respect to these clients, and Com-Co appealed.

The Illinois appellate court noted that in deciding whether a restrictive covenant can be enforced, it must determine whether the employer has a proprietary, or protectable, interest in its customers. One factor is whether the employer’s relationship with its customers is "near-permanent." Another consideration is whether the former employee who entered the restrictive covenant would have known the clients at issue had he or she not worked for the company.

On appeal, Com-Co argued that it had a protectable interest in keeping Mr. Abplanalp’s friends as its clients. In evidence presented to the trial court, Com-Co’s president stated that more than 80 percent of the company’s customers renewed their policies every year, and that clients stayed with the agency for an average of five years and seven months.

However, the appellate court referred to Illinois case law holding that an employer had no protectable interest in a customer whom a former employee seeks to retain, unless the employer can show that the former employee would not have had contact with the client if the employee had not been associated with the employer.

In this case, the court noted, Mr. Abplanalp would have known all of the clients at issue even if he had never worked for Com-Co. Mr. Abplanalp’s work for Com-Co did not help him establish his contacts with these people, the court said, and his work for Com-Co did not contribute to his ability to sell insurance to them through his new employer, Service Insurance.

The holding in this case easily could be applied to a restrictive covenant between dentists who enter a contractual, though not an employment, relationship.

The Illinois appellate court noted that there was an apparent conflict among prior Illinois appellate decisions regarding whether a company had a protectable interest in all clients that a former employee had met while working for the company. In one case, for example, the appellate court refused to find that an insurance agent would not have had contact with certain clients but for his relationship with a former employer, since these clients were brought in through "cold calls."²

However, another Illinois appellate decision appeared to reject this reasoning in a similar case. In that case, the court found that it would be "speculation" to assume that an insurance agent could have contacted his former employer’s clients and sold them insurance through another agency.³ But, in line with the present case, this opinion held that the former employer had a protectable interest only in customers acquired by the agent while he was an employee, and not in customers the agent brought to the company from a prior employer.

In the present case, the court found that Com-Co could not prove that the clients at issue would not be Service’s clients but for Mr. Abplanalp’s association with Com-Co, and it upheld the summary judgment in favor of Mr. Abplanalp and Service.

While this case concerns a restrictive covenant between an employer and employee, its holding easily could be applied to such an agreement between dentists who enter a contractual, though not an employment, relationship.

This case indicates that, even when a restrictive covenant exists, an employee or independent-contractor dentist may be able to take patients with him or her on leaving a practice—if the dentist had a personal friendship with those patients before joining the practice.

Also, while this case pertained to clients who were the insurance agent’s friends before he agreed to the restrictive covenant, the opinion cited an earlier decision in which an agent was permitted to retain clients he had brought to an agency through a pre-existing business relationship. Thus, it appears that dentists also may argue that, on leaving a practice, they may retain patients with whom they had a prior business relationship, even if they signed a restrictive covenant.

Of course, since this is an Illinois state case, this ruling establishes a precedent only in Illinois. Courts in other states may have reached different conclusions on this issue.

In Delaware, for example, a court rejected an argument by a former employee of an insurance agency that he had a "property right" to do business with agency clients with whom he had a pre-existing relationship.⁴

Consequently, dentists who are considering entering an agreement containing a restrictive covenant should consult their attorneys about the laws in their state.

View larger version (141K): [in this window] [in a new window]   Mr. Sfikas is ADA general counsel and an adjunct professor of law at Loyola University of Chicago School of Law. He has lectured and written on legal issues and is a fellow of the American College of Trial Lawyers. Address reprint requests to Mr. Sfikas at the ADA, 211 E. Chicago Ave., Chicago, Ill. 60611.