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King v. Morgan

A-4105-02T3 (N.J. Super. App. Div. 2004) (Unpublished)

CONTRACTS; EMPLOYMENT; ATTORNEYS FEES—After the term of an employment contract expires, the relationship becomes one of “at will”; the agreement’s restrictive covenant remains enforceable, but the attorneys’ fee provision may no longer be enforceable because the employment contract is no longer in effect.

A doctor hired another doctor. The employment agreement had a two year term. The employee was fired ten months after the two-year contract term. Two weeks later, his employer filed a complaint alleging that he violated a restrictive covenant in the employment agreement. In particular, the employer alleged that after the dismissal, his ex-employee contacted three patients, removed patient lists from the office, and removed records and charts for two other patients. The employer sought to enjoin his ex-employee from contacting patients, and asked for the return of any document that had been removed from the office. To support this request, the employer attached certifications from his medical assistant and receptionist, each asserting that they had observed the employee remove such items from the office. In addition, the employer submitted a certification from a patient who claimed that the employee had personally contacted her to inform her of his dismissal. She further certified that he attempted to persuade her to obtain a patient release form from the ex-employer’s office. Finally, the employer filed for counsel fees and costs, the recovery of which was permitted by the employment agreement.

The ex-employee denied the allegations, claiming that he had called the patient only to inform her that he would be unable to operate on her as originally scheduled. He then filed a counterclaim, asserting that his ex-employer failed to comply with the agreement’s sixty-day notice of termination requirement; failed to compensate him in accordance with the agreement; and failed to negotiate in good faith for the sale of a portion of the business as provided by the agreement.

The lower court issued a temporary restraining order, barring the employee from contacting or soliciting his ex-employer’s patients, and directing him to return all of the property he had taken. The employer then moved for partial summary judgment on his ex-employee’s counterclaims. The lower court entered an order dismissing only the “lack of notice” claim, based on its finding that the employee was an at will employee at the time of the dismissal because the term of the contract had expired. Once it decided that the contract term had expired, it also found that the legal fees provision of the agreement had been extinguished.

On appeal, the Appellate Division pointed out that contracting parties are permitted to agree to shift liability for attorney’s fees, but such fee shifting must be strictly construed because of a general public policy disfavoring such activity. Contracts permitting an aggrieved party to recover attorney’s fees as part of its damages are enforceable unless some larger public policy demands an alternate result. Therefore, disagreeing with the lower court, the Appellate Division held that the lower court should have taken into consideration the breach of the restrictive covenant in deciding not to award attorney’s fees. Unfortunately, for the employing doctor, it also felt that the employer had not established that its employee had breached that portion of the agreement permitting recovery of fees. Therefore, though using an alternative analysis, the Court affirmed the lower court’s holding.

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