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Ohanian v. Siegel

C-62-03E (N.J. Super. Ch. Div. 2004) (Unpublished)

EMPLOYER-EMPLOYEE; RESTRICTIVE COVENANTS; CONFIDENTIALITY—A court analyzes a variety of claims by an employer against its employee that the employee violated restrictive covenants and confidentiality provisions of an employment agreement.

A doctor hired another doctor to be an associate. The two parties entered into an employment agreement. The agreement had a restrictive covenant clause and a liquidated damages clause. The restrictive covenant clause provided that the associate would not open a medical office nor become employed as a doctor in a medical practice within a radius of five miles of the employer’s office for a period of twenty-four months following the termination or expiration of the agreement for good cause or due to the resignation of the employee. Under the liquidated damages provision, the employee acknowledged that any breach of the agreement would cause harm to the employer and that the amount of the resulting damages could be difficult to ascertain.

The doctor fired the associate, allegedly for “good cause,” based upon alleged malpractice. The doctor also alleged that the doctor took patients lists without consent, and that the associate’s attorney told her that his client intended to open her own practice as soon as she discontinued her employment. The next month, the associate opened an office as a solo practitioner within five miles of the doctor’s office. In response, the doctor sued based on the restrictive covenant, the associate’s removal of patient information, and the employee’s interference with the doctor’s client base.

The doctor sought to collect the liquidated damages, and the associate argued that the liquidated damages provision was unreasonable because the stipulated amount was not based on a reasonable estimate of the actual or potential damages that would have resulted from her breach of the agreement. The employer responded that the figure was chosen because it was mid-range between $150,000-$500,000, representing liquidated damages amounts found by the employer in analogous employment agreements. Both parties moved for summary judgment.

Stipulated damages clauses are enforceable if they provide for liquidated damages, but not for penalties. The validity of a liquidated damages clause depends on whether the set amount is a reasonable forecast of just compensation for the harm that would be caused by the breach and whether that harm is incapable or very difficult of accurate estimate. Stipulated damages clauses are deemed presumptively reasonable, the challenging party has the burden of proving otherwise. Here, the associate contended that damages would have been relatively simple to determine because they could be assessed based on the revenue received from former patients of the practice. Her employer, however, contended that, at the time of the agreement’s formation, calculating the potential damages from a breach by the employee would have been difficult to calculate due to various factors, including what types of confidential information might be taken, how far away from the office the associate might open a competing office, and how long the associate would be employed before any termination and breach. The Court noted that to determine actual losses, there would have to be an analysis of disputed facts. For that reason, the Court denied partial summary judgment on that issue.

In the employer’s motion for summary judgment, she claimed that the restrictive covenant had been violated. A restrictive covenant is reasonable where it simply protects the legitimate interests of the employer, imposes no undue hardship on the employee, and is not injurious to the public. The validity and enforceability of the covenant is fact-sensitive. A restrictive covenant causes undue hardship if it places substantial imitations on where an employee may work or if it prevents an employee from engaging in his or her livelihood. When examining the reasonableness of a restrictive covenant, a court looks at its time period, geographic scope, and scope of restricted activity. A court may also look to the reason behind the termination. Since this determination is fact sensitive, and the facts were disputed, the Court denied the employer’s motion for summary judgment.

The employer alleged the associate had breached the contract and tortuously interfered with the doctor’s practice. She contended that she had good cause to terminate her associate. The doctor also contended that her associate’s taking and retention of patient contact information, and opening of an office within the restricted area, were intentional and wrongful acts, designed to injure her.

To determine whether a firing is for good cause requires review of issues of material fact. Since those facts were disputed, the Court denied the doctor’s motion for summary judgment.

To prevail on a cause of action for tortuous interference, one must show that he or she has a protected interest, that there was an intentional interference with that protected interest without justification and with malice, and that there is a reasonable likelihood that the anticipated benefit from the protected interest would have been realized but for the interference. Resulting economic damage must also be proved. A defendant’s actions are actionable when his or her conduct is injurious and violates the generally accepted standards of common morality or violates the “rules of the game.”

In this case, the associate claimed that while it was her custom and practice to take “day sheets” home, she never used or disclosed any information about her employer’s patients. She claimed that she collected the information so that she could track her own performance and needed to do so because she couldn’t trust her employer. Although she had admittedly compiled and maintained lists of patient demographics on her home computer, she contended that she had deleted all electronic copies from her computer. Once again, because a genuine issue of material fact existed as to the employee’s motivation, and whether her acts rose to the level of malice, the Court denied the employer’s motion for summary judgment.

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