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Salartash Surgical Associates, LLC v. Del Rosario

A-1420-05T5 (N.J. Super. App. Div. 2007) (Unpublished)

EMPLOYER-EMPLOYEE; RESTRICTIVE COVENANTS; DAMAGES — An employer may sue an employee for damages for the employee’s breach of a restrictive covenant, even if the time limitation imposed on a non-compete clause of an employment contract has expired by the time of trial and even if the issue is then moot.

Two surgeons hired a third surgeon to join their surgical practice. They entered into a three-year employment agreement where either party could terminate upon delivery of sixty days written notice to the other party and the employer could terminate for cause following an opportunity to cure. The agreement also included a restrictive covenant that prohibited the employee from engaging in the practice of medicine within a twenty-mile radius of the surgical practice’s offices during and for two years after the course of the employment.

The employee resigned about one year into his employment agreement and stopped performing surgeries on behalf of the practice less than sixty days after his date of notice. The employee claimed he ceased working when his employer prohibited him from administering follow-up care to his patients. After leaving the practice, the employee opened a medical office within twenty miles of the employer’s practice. The employer sought a preliminary injunction to stop the employee from practicing in violation of the restrictive covenant, and also sought damages both for the employee’s violation of the covenant and failure to continue as an employee in the sixty days following the date of notice. The employee counterclaimed for damages he said he incurred when his employer prohibited him from providing follow-up care. The lower court denied the request for a preliminary injunction due to a forthcoming trial. The issues of the restrictive convent and the employee’s cessation of work were bifurcated at trial. Following a bench trial, the lower court found the employee to have breached the employment agreement by refusing to work and determined the restrictive covenant to be valid, but denied its enforcement.

On appeal, the Appellate Division affirmed the lower court’s determination that the restrictive covenant was enforceable but remanded it to the lower court for further proceedings related to damages. The Court found the lower court correctly applied the reasonableness test established by the Appellate Division in Community Hosp. Group, Inc. v. More, 183 N.J. 36 (2005). In Community Hosp., the Court declined to adopt a per se rule invalidating non-compete agreements and utilized a three-prong test for enforceability, which questions whether the agreement: (1) is necessary to protect the employer’s legitimate interest; (2) would cause undue hardship to the employee; and (3) would be injurious to the public. The lower court found that the surgeon’s restrictive covenant met this test. However, the lower court also required the employer to establish a functionality between the employer’s legitimate interest and the terms of the restrictive covenant, a burden the lower court found the employer did not meet.

The Appellate Division found it unnecessary to address the lower court’s application of the functionality test because the issue of the enforceability of the restrictive covenant was moot once the time period had expired. However, the Appellate Division found the lower court erred in denying the employer the ability to sue for damages for breach of the covenant. It likened this matter to the facts surrounding Community Hosp., in which that court remanded to the lower court the question of damages for breach of a restrictive covenant that had also expired. The Appellate Division further found the employer was entitled to pursue its claim for damages for its employee’s failure to continue services for sixty days following his resignation.


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