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Axelrad v. Lehman

A-1129-98T2 (N.J. Super. App. Div. 1999) (Unpublished)

EMPLOYER-EMPLOYEE; NON-COMPETITION—Although it may have wrongly claimed that a discharge was for cause, if an employer reasonably believed that cause for discharge existed, it can still be awarded agreed-upon liquidated damages for breach of a restrictive employment covenant by its former employee.

One vascular surgeon employed another under an agreement which provided that either party could terminate the agreement at will upon ninety days written notice. The agreement also provided that the employee could be terminated immediately and without notice for “other cause” which was specifically defined in the agreement as one of seven items. Rather than containing a covenant against competition, the agreement provided that the employee would pay liquidated damages in the event he practiced at either of two medical centers within three years after termination of his employment. If the employee was terminated for cause before a certain date, the stipulated damages would be $300,000. If he were terminated without cause after a certain date, the stipulated damages were to be $100,000. A time came when the employer terminated the employee purportedly for “other cause.” Upon that termination, the employee opened a nearby practice and treated patients at one of the prohibited hospitals. The employer immediately filed a complaint seeking an injunction and demanding $300,000 in liquidated damages. The lower court found that the discharge was not for “cause,” and awarded $100,000 to the employer, representing the stipulated amount for breach of the covenant after termination without cause. The Appellate Division affirmed, holding that the trial judge did not err in failing to find that the employee was the victim of “wrongful discharge.” The employer argued that, notwithstanding the employee’s at-will status under the agreement, the agreement incorporated an implied covenant of good faith and fair dealing. Essentially, the employee reasoned that because the lower court determined the termination to be without cause, it followed that the termination was “wrongful” and in violation of that implied covenant. The Appellate Division held that the employee’s reasoning was flawed because the employee assumed that the lower court’s finding of no “cause” for the termination necessarily related to a holding that the employer had acted in bad faith. Apparently, there was evidence supporting the employer’s reasonable belief that “cause” for termination existed. The Court found that the litany of complaints against the employee advanced by the employer during trial established a factually supported reasonable belief that the employer could terminate the employee for cause. Even though this was not the ultimate conclusion of the trial court, the employer’s actions fell short of the “bad faith” that would be necessary to show a breach of the covenant of fair dealing.


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