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Pierson v. Medical Health Centers, P.A.

183 N.J. 65, 869 A.2d 901 (2005)

EMPLOYER-EMPLOYEE; NON-COMPETITION; PHYSICIANS — Restrictive covenant agreements in employment agreements between physicians and hospitals are not per se unreasonable and unenforceable; they are to be reviewed on a case by case basis.

A doctor was employed by a medical center. His employment contract contained a restrictive covenant that prohibited the doctor from practicing within twelve miles of the medical center and from treating patients at a certain hospital within that twelve mile radius for a period of two years after his employment ended. The restrictive covenant did not prohibit the doctor from treating patients at other hospitals where he had staff privileges. The medical center fired the doctor. The doctor sued the medical center, claiming that the restrictive covenant prohibiting him from treating patients at the hospital was unenforceable per se because it was against public policy. The medical center demanded arbitration on its claims that the doctor breached the restrictive covenant. The doctor’s suit and the medical center’s arbitration claim proceeded. The arbitrator found that the doctor violated the agreement and awarded damages to the medical center. The arbitration award was confirmed. The lower court dismissed the doctor’s suit, finding that it was bound to follow the New Jersey Supreme Court’s holding in Karlin v. Weinberg, 77 N.J. 408 (1978), which stated that restrictive covenants in employment contracts between physicians and hospitals are not per se unreasonable and unenforceable. The Appellate Division affirmed the trial court’s dismissal of the doctor’s complaint.

The Supreme Court affirmed. It held that the determination as to whether or not to enforce a restrictive covenant in an employment contract is to be made on a case-by-case basis. A court must determine if the restrictive covenant protects the legitimate interests of the employer, does not impose undue hardships on the employee, and is not adverse to the public interest. The Court noted that the doctor had previously stipulated that the restrictive covenant was reasonable, but was still trying to argue that it was still unenforceable as against public policy. It therefore upheld the Appellate Division’s ruling.

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