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Post-employment restrictive covenants on doctors are not per se unreasonable and may be enforced on a case-by-case basis, the state Supreme Court ruled last Tuesday.

In two companion cases, doctors asked the Court to overrule Karlin v. Weinberg, 77 N.J. 408 (1978) – the seminal ruling that noncompete covenants between doctors and hospitals or medical groups serve legitimate employer interests and do not flout public policy.

But based on the evidence before it, the Court found no reason a quarter century later to change its mind. “An established rule that has governed those relationships for several decades should not be discarded unless we are reasonably certain that we have a problem in need of a cure,” Justice John Wallace Jr. wrote in The Community Hospital Group Inc. v. Jay More, A-75/76-03 [digested in this issue at page 45].

“[W]e continue to adhere to and follow the Karlin test because we conclude that it strikes the proper balance between an employer’s and employee’s freedom to contract on the one hand and the public interest on the other,” said Wallace. “In addition, we are convinced that the Karlin reasonableness test with emphasis on the public interest is sufficiently flexible to account for varying factual patterns that may arise.”

Dr. Jay More, a neurosurgeon, began working in 1994 for Community Hospital Group Inc., publicly known as JFK Medical Center in Edison, and signed employment agreements year to year containing the restrictive covenants, the last in 1999 was extended to five years. The covenant said that if More left before the agreement expired, he could not practice within a 30-mile radius for two years. More left on July 17, 2002, to join Neurosurgical Associates at Park Avenue in Plainfield, within the 30-mile radius. He also was to have privileges at Somerset Medical Center, 13-1/2 miles away.

The Court, while upholding most of the agreement, voided the 30-mile restriction as being too broad in scope. Thus, the Court sent the case back to the Appellate Division to determine what damages More may owe JFK for the period between his departure and July 2004, when the agreement was to expire, and to set a new geographical boundary no more than 13 miles in radius. Not allowing patients at Somerset Medical to be treated by More would deprive those patients of needed neurological surgery services, the Court said.

Justice Roberto Rivera-Soto dissented from that aspect of the opinion, saying he found nothing wrong with any portion of the covenant.

In the companion case, Pierson v. Medical Health Centers P.A., A-10-4 [also digested in this issue], Dr. Christopher Pierson, a specialist in interventional cardiology, was hired by Medical Health Centers in Middletown, a multipractice group, on July 1, 1997, under a three-year contract in which Pierson would establish a patient base and referral sources at Jersey Shore Medical Center. If he left, the noncompete covenant prohibited him from practicing within 12 miles of MHC’s Middletown office for two years, specifically at a competing hospital, Riverview Medical Center.

The agreement was extended in 2001, but the next year MHC said it was going to terminate Pierson and enforce the covenant. Pierson sued, but a trial judge and the Appellate Division, citing Karlin, ruled in MHC’s favor.

Karlin laid out a list of factors for judges to look at when considering the enforceability of noncompete covenants among doctors, namely:

• the time the employer needs to rebuild the practice after one doctor leaves;
• the reasonableness of the geographic scope;
• the similarity of the activities the departing doctor is barred from engaging in and those the employer engages in;
• the hardship on the departing doctor;
• the likelihood another doctor in the area can provide the same services;
• the effect on the public interest of enforcing the covenant.

Wallace observed that doctors have managed to get along with Karlin for 25 years and said that revoking the rule would not serve the public interest. “We recognize the importance of patient choice in the initial selection and continuation of the relationship with a physician. We also agree that the similarities between the attorney-client and physician-patient relationships are substantial,” Wallace wrote. “Notwithstanding those considerations, on the record before us we find insufficient justification to overrule Karlin and adopt a per se rule invalidating restrictive covenants between physicians or between a physician and a hospital.”

More’s attorney says he is disappointed the Court did not overturn Karlin. “Many judges in the trial courts would have liked to have been provided with greater guidance,” says Robert Conroy, of Bridgewater’s Kern Augustine Conroy & Schoppmann.

JFK’s lawyer sees it differently. “We are delighted the Supreme Court saw it our way,” says Carmine Iannaccone, of Newark’s Epstein, Becker & Green. “The other side wanted Karlin to be reversed after it accommodated a variety of needs.”

Iannaccone says covenants are important tools for attracting and keeping talent in New Jersey, lest doctors, once trained, defect to New York, Philadelphia or elsewhere. “The hospitals need some protection at the back end of the relationship,” he says.

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