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Employment Law Blog

Restrictive Covenants for Doctors and the Need to Remain Vigilant

March 21, 2022

It has long been the law in New Jersey that doctors can be bound to reasonable restrictive covenants. This includes those arising out of a sale of a medical practice as well as non-competition clauses contained in employment agreements. Karlin v. Weinberg, 77 N.J. 408 (1978); Cnty. Hosp. Group, Inc. v. More, 183 N.J. 36 (2005). However, medical groups should not just stick them in a file and forget about them after they are signed because circumstances change. A victory we had last week in the New Jersey Appellate Division highlights the need for medical practices to remain vigilant with regard to their restrictive covenants.

In Avhad v. Precision Pain, et al., Docket No. 2261-20 (N.J. App. Div., March 14, 2022), which can be found here, the Plaintiff-doctor was retained by Defendant-medical group pursuant to a written agreement. The agreement contained the usual confidentiality, non-solicitation and non-competition clauses. As to the non-compete, it provided that Plaintiff would not compete after she left the Practice for two years and within a ten-mile radius of Defendant’s two offices in Edison and Hamilton, New Jersey. The agreement also contained a merger clause confirming that the agreement constituted the complete understanding of the parties and could only be amended by a subsequent written agreement signed by the medical group and the doctor.

A few years later, the medical group opened a third office, this one in North Brunswick. Before the medical group allowed Plaintiff to work in that office it alleged that she verbally agreed to be bound by that same ten-mile radius from the new office. Thereafter, the doctor left the medical group and opened her own office two miles from the medical group’s North Brunswick location.

Subsequently, the doctor filed an order to show cause without restraints but requested on the return date that a declaratory judgment be entered that the restrictive covenant did not apply to the North Brunswick office because the agreement only referenced the other two locations. The trial Court agreed, finding that the merger clause required any changes to the non-compete to be in writing. It, therefore, held, in what the Court claimed was a “final order”, that the doctor could continue to practice near the medical group’s North Brunswick office and dismissed the lawsuit. On March 14, 2022, the Appellate Division reversed.

The Appellate Court held that the trial Court should not have granted final relief on the return date of an order to show cause. Moreover, it held that, notwithstanding the merger clause, there was a factual dispute concerning whether the doctor orally agreed not to practice near the North Brunswick location. The Appellate Division, therefore, remanded the case to the trial Court.

The take-away: if medical groups want to protect their valuable relationships with their patients, they periodically need to have counsel review their non-compete agreements with their doctors and physician assistants, especially when opening new locations. Moreover, this area of the law is not statutory but driven by case law and, therefore, non-competition agreements should be reviewed from time-to-time to ensure they remain enforceable as case law changes.

Steven I. Adler, Esq., Co-Chair of the Labor and Employment department at Mandelbaum Barrett is available to answer any questions about restrictive covenants you may have.

Attorney: Steven Adler
Related Practice: Labor and Employment