Brief Fact Summary. Two oral surgeons entered into an employment contract whereby surgeon 1 was to be an employee of surgeon 2. The employment agreement included a covenant not to compete. Surgeon 1 left the employ of surgeon 2, and began to compete.
Synopsis of Rule of Law. A covenant not to compete is not enforceable if it prevents an individual from working in a field that his employer does not work in.
It is a question of intention, to be deduced from the whole instrument and the circumstances; and if it appear that the performance of the covenant was intended, and not merely the payment of damages in case of a breach, the covenant will be enforced.View Full Point of Law
Issue. Is a covenant by a professional not to compete enforceable and if so to what extent?
Held. It depends on the terms of the covenant. The court first observed that based on the facts of the case, "the area restriction" in the covenant not to compete "is manifestly reasonable." Specifically, the "[t]he five small rural counties which it encompasses comprise the very area from which the plaintiff obtained his patients and in which the defendant would be in direct competition with him." Meaning, it encompasses precisely the territory in which the Plaintiff's practice extends. Second, the court also observed that a covenant is not invalid because "it is unlimited as to time, forever restricting the defendant from competing with the plaintiff." However, the court voiced concern over how all or virtually all of the Defendant's patients stemmed from his relationship with the Plaintiff. Third, the court construed whether the provision of the covenant forbidding the practice of "dentistry and/or Oral Surgery" is appropriate. The court observed that the Appellate Division deemed the provision invalid because the Plaintiff only practice oral surgery, but the covenant also forbid the practice dentistry. The court found "the plaintiff was not privileged to prevent the defendant from working in an area of dentistry in which he would not be in competition with him."
• The court then examines whether it has the power to sever the impermissible portions of the covenant. The court concludes it has the power to sever the violative provisions because "the plaintiff gains all the injunctive protection to which he is entitled if effect be given only to that part of the covenant which prohibits the defendant from practicing oral surgery."
• As to damages, the court observed "it would be grossly unfair to grant the plaintiff, in addition to an injunction, the full amount of damages ($40,000) which the parties apparently contemplated for a total breach of the covenant, since the injunction will halt any further violation."
Discussion. It is interesting to read this case along side [Howard Schultz & Associates v. Broniec], which refuses to sever the violative portions of a covenant not to compete.