United States: Court Of Appeals Reverses Summary Judgment In Favor Of Employee Seeking To Avoid Noncompetition Agreement

In a March, 2015 decision, the Court of Appeals reversed the summary judgment granted an employee who sought to avoid the noncompetition obligations set forth in her employment agreement. Mountain Comprehensive Health Corporation v. Gibson, No. 2013-CA-000373-MR (Ky. App. March 13, 2015). This opinion is designated as "not to be published."

Crystal Gibson was a nurse practitioner working at Mountain Comprehensive Health. In the course thereof, her work was supervised by Dr. Baker. She performed her services pursuant to a series of written employment agreements. As part thereof, it was agreed that:

The Physician Assistant further expressly covenants and agrees (unless waived in writing by the Corporation) that, for a period of one (1) year following the termination of his/her employment with the Corporation, he/she will not, directly or indirectly, for himself/herself or as an agent, on behalf of, or in conjunction with, and [sic- any] person, firm, association or corporation engage [sic- engaged] in the practice of medicine within a fifty (50) air miles radius from any clinic now operated by the Corporation or that may be operated by the Corporation in the future.

After leaving her employment with Mountain Comprehensive, Gibson joined the Whitesburg Women's Clinic, the facility where to which Dr. Baker had moved his practice. Whitesburg Women's Clinic and Mount Comprehensive are approximately 1 mile from one another. Coincident with joining Whitesburg Women's Clinic, Gibson sought a declaration of rights to the effect that the noncompetition provision of her employment agreement was unenforceable on the basis of force majeure as well as an unreasonable geographic restriction.  The trial court agreed, holding in part:

In addition, the trial court found the Agreement was unenforceable pursuant to a force majeure clause. Finding Dr. Bakers' decision to leave Mountain Comprehensive a factor outside Gibson's control, the trial court determined that Gibson would not have been able to perform as an OB/GYN position's assistant because Mountain Comprehensive would no longer have an OB/GYN at the Whitesburg Clinic. The trial court further determined the restrictive covenant was void for a variety of public policy reasons, in that it contained an unreasonable geographic restriction, served no legitimate business purpose, and would create issues of continuity of care for numerous patients. The trial court also found Mountain Comprehensive waived its rights to enforce the restrictive covenant based on a previous pattern of non-enforcement of covenants with other employees. Slip op. at 4.

As alluded to above, the Court of Appeals would reverse the trial court.

With respect to the trial court's determination that the employment agreement ended by its terms on April 2, 2012, thereby precluding the enforcement of the noncompetition agreement, the Court of Appeals would agree that this reading failed to construe the contract as a whole and give effect to all of its parts. Rather, while the agreement to render services may have by its term ended, the restriction against competition provided for rights and obligations applicable after the agreement's otherwise termination.

The Court of Appeals would likewise reverse the force majeure reasoning. Under the employment agreement at issue, a party to the agreement could be excused from performance of an obligation thereunder "where they are prevented from so performing by any cause not within the control of the party whose performance is interfered with, and which by the exercise of reasonable diligence, the party is unable to prevent.

The trial court had found that Dr. Baker's departure from Mountain Comprehensive would leave Gibson without a supervising OB/GYN physician, thereby giving rise to a force majeure outside of Gibson's control. On appeal, Mountain Comprehensive would argue that there was a question as whether the force majeureagreement applied in that Gibson was licensed as a physician's assistant for general primary care, and not only the OB/GYN subspecialty. Therefore, even if Baker was not there rendering OB/GYN services, Gibson could have assisted other physicians. In addition, it would have been possible for Gibson to render services to another OB/GYN physician, Hadley, who would appear to join the practice after Gibson's departure.

Turning to the public policy bases relied upon by the trial court, and noting that covenants against restriction can be "a valuable business tool in protecting a business from competition from former employees," the Court of Appeals held there to exist a material fact question as to whether this agreement had a legitimate business basis, and for that reason summary judgment had been prematurely granted.

As to the basis of the 50 mile scope of the restriction against competition, the trial court was criticized for not utilizing it "blue pencil" powers to amend the restrictive range so as to avoid it being overly broad.

As to Gibson's assertion that the enforcement of the noncompetition provision would create issues of continuity of care for numerous patients, the Court of Appeals noted that these concerns could have been perhaps addressed by Gibson remaining with Mountain Comprehensive. Regardless, summary judgment was improper in that the assertion raised questions of public policy that involve questions of fact not appropriate for summary judgment.

The Court of Appeals also determined that the evidence put forth in support of the summary judgment did not demonstrate that Mountain Comprehensive had previously waived the right to enforce a noncompetition agreement.

Originally published on Kentucky Business Entity Law

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