SUMMARY
A Pennsylvania appellate court recently granted an employer’s request for enforcement of a restrictive covenant against a hospitalist, finding that his departure from the primary care office setting did not affect the terms of his non-compete clause. The appellate decision also makes clear that the availability of a damage remedy does not preclude the issuance of an injunction to prevent the breach of a restrictive covenant.
The Superior Court of Pennsylvania issued its 2-1 decision on April 24, 2015, in Geisinger Clinic v. Mark M. Radziewicz, D.O., No. 505 MDA 2014, 2015 WL 1874597 (Pa. Super Ct. April 24, 2015). This decision orders that Geisinger Health System (“Geisinger”) be granted the injunction the trial court denied concerning a restrictive covenant agreed to by Dr. Radziewicz in connection with his employment at Geisinger. Before starting to work at Geisinger’s Mountain Top, Pennsylvania clinic in 1998, Dr. Radziewicz was required to sign a practice agreement. Dr. Radziewicz agreed to a restrictive covenant prohibiting him from practicing medicine, applying for staff membership, or exercising clinical privileges within a fifteen-mile radius of the Geisinger clinic for two years after his employment ended. The agreement also provided that Geisinger would waive the restrictive covenant if Dr. Radziewicz paid Geisinger the greater of his annualized base salary or his total compensation during the year prior to his departure.
Dr. Radziewicz left Geisinger’s employment to begin work as a hospitalist. His new employer assigned him to work at Wayne Memorial Hospital in Honesdale, Pennsylvania, more than fifteen miles from Geisinger’s Mountain Top clinic. After almost a year and a half in that position, he was transferred to Wilkes-Barre General Hospital (“Hospital”), which was just eight miles from his former place of employment with Geisinger. Geisinger sued and argued that this reassignment, which occurred less than two years after Dr. Radziewicz left Geisinger, put him in violation of the restrictive covenant.
In a hearing held on Geisinger’s claim that Dr. Radziewicz breached the practice agreement, Geisinger presented unrebutted evidence that Geisinger had spent $67,000 to promote and build Dr. Radziewicz’s practice. It also established that one Geisinger patient, arriving through the emergency room, was treated at the Hospital by Dr. Radziewicz.[1]
The Court of Common Pleas of Montour County refused to grant Geisinger’s injunction request, which would have required Dr. Radziewicz to stop working at the Hospital. The trial court found that Geisinger failed to show that relief was necessary to prevent immediate and irreparable harm, and that Geisinger was unlikely to prevail on the merits. The trial court ruled that the Geisinger restrictive covenant was not violated because Dr. Radziewicz was not practicing family medicine, and, therefore, was not in competition with Geisinger.
In reversing, the Superior Court rejected the trial court’s reasoning that a change in the physician’s employment from an outpatient primary care physician to a hospitalist was relevant. Instead, the Court concluded that the practice agreement’s restriction against obtaining clinical privileges and staff memberships at any health care facility within fifteen miles applied, and that “Dr. Radziewicz violated its clear and express terms when he started to work at Wilkes-Barre General Hospital in October 2013.”
Interestingly, the Court addressed the dissent’s argument that Geisinger had an adequate remedy at law given that Dr. Radziewicz could have paid Geisinger to waive the restrictive covenant under the practice agreement’s quasi-liquidated damages clause. The Court noted that the existence of this remedy, which Geisinger was actually pursuing in a separate damage action in Luzerne County, did not preclude the issuance of injunctive relief. The Court also noted that the clause was not a true liquidated damages clause because instead of allowing the non-breaching party the remedy of a specific sum in the event of a breach, it allowed the breaching party to avoid the restrictive covenant entirely by paying the sum required. The Court relied on Section 361 of the Restatement (Second) of Contract, which states quite clearly that “[S]pecific performance of an injunction may be granted to enforce a duty even though there is a provision for liquidated damages for breach of that duty.” Unless the language of the contract shows a contrary intent, both remedies will be available in an appropriate case. The Court concluded that here, because Dr. Radziewicz did not make the payment he could have made to avoid it, “Geisinger’s ability to enforce the restrictive covenant is reinforced rather than eroded by the clause in question.”
The dissent reasoned that a liquidated damages clause in the practice agreement precluded the issuance of an equitable remedy enjoining the physician from practicing medicine at the Hospital – and the majority opinion clearly rejected that notion.
The Superior Court remanded the case for entry of an order prohibiting Dr. Radziewicz’s practice of medicine for the period of time he breached the practice agreement’s terms, despite the fact that the two-year period contemplated in the restrictive covenant ended on June 22, 2014.
WHAT TO KEEP IN MIND
The decision in Geisinger v. Radziewicz is an important one because it highlights the need for both careful drafting and, in the event of an alleged breach, carefully proffered evidence. The fact that the parties agree to a method for avoiding an injunction (a real liquidated damages clause or a waiver-of-restriction clause like the one at issue here) will not bar the issuance of an injunction if the restrictive covenant is shown to be otherwise reasonable and a breach is proved. In other words, the injunction may be needed to prevent the breaching conduct, and the damage remedy may be needed to compensate for the damage caused by the breaching conduct before it was enjoined.
This decision should encourage the careful drafting of non-compete clauses to allow either or both of the employer and employee the ability, when their relationship is terminating, to create remedies that potentially (1) will compensate the employer for its loss on a clearly measurable basis, and/or (2) permit the employee to accept new employment and avoid the restriction, while at the same time (3) permitting the employer to pursue both legal and equitable remedies as a result of a proven breach.
[1] Geisinger’s physicians do not have staff privileges at the Hospital and, as such, any Geisinger patient admitted there requires the services of a hospitalist
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