Karlin v. Weinberg
390 A.2d 1161, 77 N.J. 408, 1978 N.J. LEXIS 233 (1978)
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Rule of Law:
A post-employment restrictive covenant ancillary to an employment contract between physicians is not per se unreasonable or unenforceable; instead, its enforceability is determined by a reasonableness test considering the protection of legitimate employer interests, undue hardship on the employee, and injury to the public.
Facts:
- Dr. Joseph Karlin established his dermatology practice in Denville, New Jersey, in 1966.
- In 1973, Dr. Karlin employed Dr. Harvey Weinberg after Dr. Weinberg completed his medical training and had not previously resided or practiced medicine in New Jersey.
- On June 23, 1973, Dr. Karlin and Dr. Weinberg entered into a one-year employment contract, effective July 1, 1973, which contained a termination clause stating that Dr. Weinberg would not, for five years after termination, engage in the practice of dermatology within a 10-mile radius of Dr. Karlin's office at 60 Broadway, Denville, New Jersey.
- Prior to the expiration of the one-year contract, the parties decided to form a partnership and practiced as partners after the employment contract expired, though no formal partnership agreement was ever executed.
- The partnership dissolved as of January 31, 1976, after a dispute over business practices.
- Dr. Karlin continued to conduct his practice at 60 Broadway, Denville, while Dr. Weinberg opened his new medical office just a few doors away at 92 Broadway, Denville.
- From February 2, 1976, to March 6, 1976, Dr. Weinberg treated approximately 130 patients, 60 of whom he had previously seen during his association with Dr. Karlin.
- Dr. Weinberg's Denville practice required approximately 16 hours a week, with the remainder of his time spent in other part-time medical jobs in New York and New Jersey.
Procedural Posture:
- Dr. Karlin commenced an action in the trial court (Chancery Division) seeking an injunction to enforce the restrictive covenant and damages for its violation, while Dr. Weinberg filed a counterclaim for an accounting of his share of partnership income and property.
- Dr. Weinberg moved for an order of 'partial summary judgment dismissing the complaint,' arguing that the restrictive covenant was invalid as a matter of law, relying on Dwyer v. Jung.
- The trial court denied Dr. Karlin interlocutory relief and granted Dr. Weinberg’s motion for partial summary judgment, holding that restrictive covenants between physicians are per se unreasonable and unenforceable, applying the rationale of Dwyer v. Jung.
- The Appellate Division reversed the trial court's decision and remanded the case, holding that Dwyer v. Jung was inapplicable to physicians and that the trial court erred in dismissing the complaint and denying interlocutory relief as a matter of law.
- The Supreme Court of New Jersey granted certification to examine the issue of the enforceability of such covenants.
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Issue:
Does a post-employment restrictive covenant ancillary to an employment contract between physicians constitute a per se unreasonable and unenforceable restraint on trade, or is its enforceability determined by a case-by-case analysis of its reasonableness?
Opinions:
Majority - Clifford, J.
No, a post-employment restrictive covenant ancillary to an employment contract between physicians is not per se unreasonable and hence unenforceable. The Court affirms the long-standing case law of New Jersey, which dictates that such covenants are enforceable to the extent they protect a legitimate interest of the employer, impose no undue hardship on the employee, and are not injurious to the public. The employer-physician has a legitimate interest in protecting patient relationships developed through their efforts, expenditures, and reputation. The Court distinguishes Dwyer v. Jung, which found restrictive covenants among attorneys per se unenforceable, on two grounds: first, the covenant in Dwyer completely prohibited the attorney-client relationship, whereas the present covenant only imposes geographical or time limitations; second, the ruling in Dwyer was based on the judiciary's unique constitutional responsibility to regulate attorneys, specifically citing DR2-108(A) of the Disciplinary Rules, a rule with no analogue in the regulations governing physicians. The Court rejects a per se rule for physicians, arguing it would be inequitable for employing physicians and could deter them from hiring younger associates or forming partnerships, potentially harming the public. Instead, a case-by-case analysis is required, with courts considering specific factors related to the employer's need, employee's hardship, and public interest.
Dissenting - Sullivan, J.
Yes, the restrictive covenant in question contained in the employment agreement between two medical doctors is per se invalid as against public policy. Justice Sullivan argues that the practice of medicine is affected with a public interest, and such covenants do violence to the physician-patient relationship. Patients have a fundamental right to choose their physician, a relationship characterized by trust, confidence, and the disclosure of sensitive personal information. A restrictive covenant that substantially intrudes on this relationship and interferes with this fundamental right should be held contrary to public policy. The dissent notes that 50% of Dr. Weinberg's new patients were individuals he had previously treated with Dr. Karlin, and enforcing the covenant would require these patients to travel substantial distances, thereby disrupting established relationships. Justice Sullivan finds no essential difference in principle between the attorney-client and physician-patient relationships, arguing that the rationale in Dwyer v. Jung, which invalidated restrictive covenants for attorneys based on client choice and fiduciary duties, applies equally to physicians.
Analysis:
This case is a landmark decision distinguishing the enforceability of restrictive covenants for physicians from those for attorneys, establishing that the former are not per se invalid. It reinforces the New Jersey Supreme Court's commitment to a flexible, fact-specific 'reasonableness' standard for evaluating such covenants in the medical field. The ruling provides significant protection for established medical practices' patient relationships while requiring courts to carefully balance these interests against potential undue hardship on the departing physician and any injury to public access to medical care. The distinction based on differing professional ethical regulations and the judiciary's unique supervisory role over the bar versus other professions remains a critical legal precedent, influencing how similar professional restrictive covenants are adjudicated in New Jersey and potentially serving as persuasive authority in other jurisdictions.
