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- The Class Action Fairness Act of 2005: Major Reforms Bode Well for Defendants »
- New Deferred Compensation Rules Require Prompt Action by Sponsoring Employers »
- SELLER BEWARE - Contract Buyer's Rights to Your Property May Be Greater Than You Think »
- Enforceability of Non-Competition Agreements - Physicians »
- Supreme Court Upholds Power of Eminent Domain For Economic Redevelopment Purposes »
- Firm Announces Formation of Redevelopment Practice Group »
- Transactions »
- Highlights »
Enforceability of Non-Competition Agreements - Physicians
By: Hal W. Mandel
In the Fall of 2003, we reported on the importance and enforceability of non-competition agreements. In two recent decisions, Community Hospital Group, Inc. v. More, et al. and Christopher Pierson, M.D. v. Medical Health Centers, P.A. and Joseph Clemente, M.D., the New Jersey Supreme Court confirmed once again that a post-employment restrictive covenant in an employment agreement between physicians or between a physician and a hospital is not per se, unreasonable and unenforceable. The Court again confirmed that in order for a restrictive covenant to be enforceable against a physician (a) the restrictive covenant must be necessary to protect the employer physician’s legitimate interests in enforcement, (b) the restriction must not cause undue hardship to the employee physician and (c) the restriction must not be injurious to the public. The legitimate interest of the employer may include protecting (i) confidential business information, including patient lists; (ii) patient and patient referral bases; and (iii) investment in the training of the physician. However, the Court emphasized that an employer does not have a legitimate interest in restricting competition.
The permissible duration of the restrictive covenant is determined on a case by case basis. The Court did note however that a longer restriction may be permissible in medical specialties where the number of contacts between the physician and patient are relatively infrequent. However, even with regard to medical specialties, the covenant should not be enforced beyond the period needed for the employer (or the replacement for the departed physician) to demonstrate his effectiveness to the patients. In both of the recent cases, the Court upheld a two year restrictive covenant.
The Court noted that it is less likely to find undue hardship on the employee if the employee puts himself in the position of bringing the restriction into play, such as by voluntarily terminating his employment. On the other hand, where the employer terminates the employment relationship, it will increase the likelihood that the court will find the hardship on the employee to be characterized as “undue.”
Most importantly, the Court emphasized that the enforcement of the restrictive covenant should not cause harm to the public. In determining this prong of the test, it appears that the Court, at least based on the present cases, will take a very hard look at the impact to the public and, because of the importance of health care to the population in general, will not hesitate to find a restriction unforceable if it has even a slight impact on the availability of medical services to the public.
In Community Hospital Group, Inc. v. More, et al., the employer attempted to impose a restriction of 30 miles from the employer’s place of business. The court ultimately reduced that geographic limitation to 12 miles based on the impact that the imposition of a greater geographical area would have on the public interest. If the geographical limit was more limited in the first place, the Court might not have placed so much emphasis on whether the restrictions imposed on the employee were injurious to the public interest.
In conclusion, a restrictive covenant is still enforceable against a physician employee provided it is properly drafted and close attention is paid to the various elements set forth in Community Hospital and Pierson.