Alaska Employment Law

The Alaska Supreme Court this morning construed a non-compete covenant ancillary to a sale-of-business agreement.  The Court (per Justice Fabe) reversed the Superior Court (Hon. Sharon Gleason), more broadly construed the phrase “practice of dentistry,” distinguished business covenants from employment covenants, and remanded for determination of whether the seller breached the covenant and whether the covenant was against public policy.

One year after selling a dentistry practice to Dr. Guy Ingrim and subjecting himself to a “covenant not to compete” as to “the practice of dentistry,” Dr. Dominic Wenzell started work at the Alaska Native Medical Center in Anchorage.  He contended that his work at the public clinic was not “competitive” with his old business. 

Anchorage Superior Court Judge Sharon Gleason held that Wenzell was not engaged in the “practice of dentistry,” relying on the exclusion of ANMC work from the state Dental Board’s regulatory jurisdiction in AS 08.36.350(a).

On appeal, the Supreme Court held:

1) The AS 08.36 exemption is not dispositive as to the phrase “practice of dentistry”; in fact, the exemption for ANMC work reflects the legislature’s understanding that ANMC dentistry is actually an instance of “the practice of dentistry.”

2)  Common industry usage, including that of the American Dental Association, is that public dentistry is “the practice of dentistry.”

3) The parties’ contractual restriction applied only to “competitive” practice of dentistry, as must be inferred from a) use of the phrase “covenant not to compete” (vs. “covenant not to engage in dentistry”?), and b) use of a liquidated damages figure tied to the sale price of the business (here, 50 %).  

4)  Restrictive covenants ancillary to business transactions  need not be as closely scrutinized for enforceability as those ancillary to employment contracts, because business parties “are more likely to be of equal bargaining power.”

5)  Remand is necessary to determine whether a) the seller breached the covenant; and b) whether the covenant is broader than necessary to protect the buyer’s interests.  The purchaser argued that the seller “competed” with him by treating patients who would be willing to pay for private dental care, and by reducing possible referrals. 

The Court said that competition may be presumed when the restricted party “opens a for-profit practice or accepts private employment.”  But, in the “rare instance where a party is attempting to enforce a covenant not to compete against a person employed by a federally-funded non-profit organization that provides free or low-cost health care services, . . competition will not be presumed and must be proven.”

Wenzell v. Ingrim, ___ P.3d ___ (Alaska Apr. 9, 2010)

David Devine and Sarah Badten from Groh Eggers represent the purchaser-plaintiff.  Blake Call represents the seller-defendant.  All counsel practice in Anchorage.