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Memorandum – Is Noncompete Clause Enforceable
Dr. Hathaway is interested in what might happen if she litigates this matter. For preparation, a short memo that analyzes whether or not the noncompetition covenant (NCC) in Dr. Hathaway’s employment agreement is enforceable.
The legal research has already been completed – utilize the attached cases only.**NO ADDITIONAL RESEARCH IS REQUIRED**
Request for a memorandum evaluating the enforceability of the non-compete clause of the Employment Agreement. I believe the Employment Agreement is a valid contract, that there was an offer, acceptance, and consideration (no need to evaluate whether the entire Agreement is a valid contract). For purposes of this memorandum, and based on the facts presented by Dr. Hathaway, Dr. Hathaway breached the non-compete clause. Therefore, please do not evaluate whether she breached it. Please simply focus on the enforceability of the NCC.
• GOAL – Dr Hathaway does not want to loose her practice
• Please apply the Issues, Rule, Analysis/Application, Distinguish, and Conclusion format (attached) based on the facts of Dr Hathaway’s case
• The RULE/precedent case – Raimonde v Van Vlerah
• Case Law – additional cases
o Wilson v Kreusch
o Williams v Hobbs
o Rogers v Runfola
• Also, apply the 3prongs (whether it impacts the following and why/why not) in order to do the analysis of each case
o Employer interest (paragraph)
o Employee Interest (paragraph)
o Public Interest (paragraph)
**Need citation for attached cases
**ONLY USE THE ATTACHED CASES PLEASE
Demand Letter:
Dear Dr. Hathaway, In January, Year 4, you entered into an employment agreement (the “Agreement”) with my client, Back & Neck Specialists. As you are aware, the Agreement sets forth restrictive covenants that bound you after the termination of your employment at Back & Neck Specialists. You are now in violation of these covenants. The Agreement contained a provision prohibiting you from practicing within a 10-mile radius after the termination of your employment. Your new practice, Personal & Athletic Injury Therapists (“Therapists”), is located within this 10-mile radius. Additionally, your marketing tactics have caused considerable damage to Back & Neck Specialists. In light of your breach of contract, Back & Neck Specialists intends to enforce the remedies provided for in the Agreement. Back & Neck Specialists plans to file suit for injunctive and other relief if Therapists does not close its business. In accordance with the Agreement, if this matter proceeds to trial, Back & Neck Specialists will also seek a minimum of 50% of Therapists’ gross receipts and punitive damages for your opportunistic breach of the Agreement.
Blurb from Employment Contract
Upon the termination of employment of Employee pursuant to this Section 6: Employee shall be entitled to send notices regarding the establishment of Employee’s new office to those patients for whom Employee has been the primary chiropractor. Employee shall not be entitled to send such notices to any other patients of the Practice; Any patient requesting, either by telephone or in writing, that records be transferred from Employer’s office to another office on behalf of Employee, shall be accommodated within seven (7) working days of receipt of such request. Employer shall send appropriate copies of all such records, and all reasonable costs incurred in transferring said records will be assumed by Employer; provided, however, that Employer retains the right to maintain originals of such records; Employee shall be entitled to the return of all equipment, supplies, instruments and books brought to the Practice by Employee, as evidence by a specific list (which shall be updated from time to time, as may be appropriate) of such property maintained by Employee and kept on file with Employer; and Employee will be responsible, as determined by Employer, in its sole discretion, for completing any treatment to patients as to whom Employee’s failure to complete such treatment could jeopardize the health of such patient. Covenants For a period of two (2) years following the termination of her employment, however caused, the Employee will not, within ten (10) miles of Employer’s location, directly or indirectly, for herself, on behalf of, or as an employee of any other firm, association, corporation, or other entity, engage in, or be employed by a practitioner of, chiropractic medicine. For the purposes of Section 7, Employer’s location is 211 W. Schrock Road, Westerville, OH 43081. 7 Employee and Employer recognize that the covenants of Section 7 will survive the termination of this Employment Agreement regardless of the cause of such termination.
Case Brief:
Raimonde v. Van Vlerah, 325 N.E.2d 544 (Ohio 1975).
Facts: Employer sought to enforce non-compete covenant to prevent former employee
from accepting similar employment or practicing his profession within 30 miles of
employer’s location for a period of 3 years. The Court of Appeals refused to enforce the
covenant.
Holding and Rationale: The Ohio Supreme Court remanded the case to allow the trial
court to fashion a reasonable non-compete covenant, holding that:
1. Non-compete covenants will be enforced when the restrictions they impose are
reasonable.
2. Non-compete covenants that are unreasonable will be enforced to the extent
necessary to protect an employer’s legitimate interests.
3. A non-compete covenant is reasonable when the employer can show the
restrictions are 1) no greater than necessary for the protection of the
employer’s legitimate business interests, 2) do not impose undue hardship on
the employee, and 3) are not injurious to the public. Factors to consider when
evaluating reasonableness include:
a. Whether the employee represents the sole contact with the customer
b. Whether the covenant seeks to eliminate competition which would be
unfair to the employer or merely seeks to eliminate ordinary competition
c. Whether the covenant seeks to stifle the inherent skill and experience of
the employee
d. Whether the covenant operates as a bar to the employee’s sole means of
support
e. Whether the employee’s talent which the employer seeks to suppress was
actually developed during the period of employment
Case Brief:
Rogers v. Runfola & Assocs., Inc., 565 N.E.2d 540 (Ohio 1991)
Facts: Two court reporters resigned after 10 years of working for the employer. The
employer sued to enforce the non-compete covenant, which prohibited the former
employees from working as court reporters in the county for two years and from
soliciting the employer’s clients forever. The Court of Appeals held the covenant was
unreasonable.
Holding and Rationale: The Ohio Supreme Court modified the covenant, holding:
1. The original restrictions caused the former employees undue hardship because
court reporting was the only profession in which they were proficient.
2. The employer had a legitimate business interest to protect because he invested
time and money in equipment, facilities, support staff and training and
developed the clientele list.
3. Modifying the covenant to prohibit former employees from soliciting clients
and working as court reporters within the city limits for one year effectively
balances employer’s interest and hardship on former employees.
Case Brief:
Williams v. Hobbs, 460 N.E.2d 287 (Ohio Ct. App. 1983)
Facts: A radiologist sued his former employer after they enforced a non-compete
covenant to prevent him from practicing his specialty at the hospital. The trial court held
the non-compete covenant was unreasonable and did not enforce it.
Holding and Rationale: The Court of Appeals affirmed, holding:
1. Enforcing the covenant would be injurious to public because the former
employee was a specialist radiologist whose skill was uncommon in
community.
2. The covenant also imposed undue hardship on the doctor and community because
the hospital is one of only a few institutions where he could practice his
specialty.
Case Brief:
Wilson v. Kreusch, 675 N.E.2d 571 (Ohio Ct. App. 1996)
Facts: A chiropractor opened up a new office within three miles of his former employer’s
office in violation of the non-compete covenant in the employment contract. The trial
court modified the covenant, holding that the original restriction barring the former
employee from practicing any chiropractic medicine was unreasonable.
Holding and Rationale: The Court of Appeals affirmed, holding:
1. The modifications adopted by the trial court appropriately balanced the interests
of the employer, former employee and public because
a. They preserve the employer’s patient base and limit the former
employee’s ability to compete in the immediately surrounding area.
b. They do not impose undue hardship on the former employee because he is
not required to move his office and can accept new patients.
c. They are not injurious to the public because they have limited impact on
potential new patients.
2. The employer’s delayed enforcement of the covenant increased the covenants
detrimental effect on the employee, who had already established a new office.
Memorandum of Law
To: New Associate
From: Aubrey Matthews, managing partner Re: Memo
Dr. Hathaway is interested in what might happen if she litigates this matter. So that I am prepared for our next meeting, please prepare a short memo for me that analyzes whether or not the non- competition covenant (NCC) in Dr. Hathaway’s employment agreement is enforceable.
MEMORANDUM
TO: FROM: DATE:
RE: Potential Enforcement of Non-Competition Covenant
Questions Presented/Issue: Introductory/Overview Paragraph- This paragraph identifies the overall
question (enforcement of the non-competition covenant). It also provides the context for the reader to understand the problem by providing a very summary discussion of the facts.
Rule: Background Principles-These paragraphs(s) identify the rule, that is explain the law, by identifying the factors courts consider important in evaluating the issue. You will not discuss the facts of these cases. You will just state some of the basic relevant rules.
Analysis: Rule application and analysis of the facts with the rule. These paragraphs set forth your application of the law/rule to your client’s facts by setting forth specific analogies between your client’s facts, the precedent rule, and the analogous/explanatory cases.
Distinguish: Distinguish( if possible) cases reaching the wrong result. This paragraph presents both favorable and unfavorable comparisons between the distinguishing case and your client’s facts.
Conclusion: Concluding paragraph- Add an answer/conclusion to the issue and the overall question and provide next steps advice based on that conclusion.
Lee, Lynne, & Parker, LL.C. 105 Snow Way Drive, Suite 124, Columbus, OH 43215
(614) 726-3000 www.llplaw.com
Memorandum
To: New Associate From: Aubrey Matthews, Esq., Managing Partner Re: Notes from Interview with Dr. Carol Hathaway/Potential Enforcement of the
Back & Neck Specialists Employment Agreement (File Number JEL-V9092)
Date: October 15, Year 5 I met with Dr. Carol Hathaway yesterday afternoon. I know Dr. Hathaway from work that I have done with a local non-profit. We both serve on the board. Dr. Hathaway is a chiropractor with certification as a chiropractic sports physician. She recently opened a practice named Personal & Athletic Injury Therapists, LLC, within the city limits of Columbus located at the intersection of 5th and Cleveland. Dr. Hathaway came to our firm because she received a demand letter last month from an attorney on behalf of her previous employer, The Back & Neck Specialists, LLC (the “Specialists”). The demand letter (see attached) involves the Employment Agreement that governed her employment with the Specialists. This memorandum summarizes our meeting. After graduating Ohio University with a degree in physiology, Dr. Hathaway enrolled in a program to become a registered nurse. Shortly thereafter, Dr. Hathaway had a change of heart, and decided to attend Logan College of Chiropractic in Saint Louis, Missouri. At Logan, Dr. Hathaway was President of the Student Doctor’s Council, the governing body for students at Logan College, and was always near the top of her class. After graduating with her Doctor of Chiropractic Degree in Year 1, Dr. Hathaway passed her national and state boards and started with a small chiropractic practice in Grove City, Ohio. Dr. Hathaway believes that her employment in Grove City gave her the initial practical experience that she needed to fully service clients. Dr. Hathaway’s contract with the Grove City practice contained no restrictive covenants. In January of Year 3, Dr.Hathaway left the Grove City practice and began with the Specialists, a well-established chiropractic practice located in Westerville, Ohio. At the start of her employment, the Specialists employed seven full-time chiropractors and three part-time chiropractors, and Dr. Mark Green was the Managing Partner. When Dr. Hathaway joined the Specialists, she signed an Employment Agreement that set forth her duties, compensation, benefits, and restrictive covenants. Before Dr. Hathaway signed the agreement, Thomas Hathaway Jr., Dr. Hathaway’s brother, an attorney practicing in Toledo, read the agreement and made sure it was okay to sign. She listed him as her attorney in the agreement without his knowledge. Attorneys at Lewis & Associates have not reviewed or analyzed the validity of this
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agreement. The subject matter of this lawsuit concerns the agreement not to compete contained in this Employment Agreement. (See attached Employment Agreement.) The practice at the Specialists primarily focuses on rehabilitation services and treatment for individuals who have suffered injuries as the result of traumatic accidents. The Specialists was incorporated in 2000 and, since then, has established an extensive referral network within the medical and legal community of the greater Columbus area. At the Specialists, patients can make specific appointments or “walk-in” and see the next available chiropractor. Most new patients come as a result of a referral from a physician, an attorney, or an existing patient. Once a patient comes to the Specialists, the chiropractor who treats the patient on his or her first visit will normally become the patient’s primary chiropractic caregiver. The number of visits that any particular patient makes for treatment varies greatly depending on the patient’s injury or disease; however, many become “regulars” who visit on a semi-monthly or monthly basis for many years. In addition to the provision of quality care, when Dr. Hathaway started, the Specialists performed extensive community service in Westerville. Chiropractors from the Specialists frequently participated in seminars and health education programs throughout the community, and the Specialists published newsletters on chiropractic health issues affecting the community at large. Most of the Specialists’ community involvement was initiated at Dr. Green’s request. Dr. Hathaway shared Dr. Green’s belief in community service, and, after she started, the two quickly became friends. When Dr. Hathaway began with the Specialists, the practice wanted to expand its sports- related injury business. At that time, the Specialists had only one chiropractor certified as a chiropractic sports physician, and the greater-Columbus area had only five chiropractors with this certification. The management team of the Specialists believed that the area of sports injury rehabilitation was a major area of potential growth within the field of chiropractic. Because Dr. Hathaway had already expressed interest in this subspecialty of chiropractic, the management team at the Specialists asked her if she would be interested in receiving her certification. During the summer and fall of Year 3, the management team agreed to allow Dr. Hathaway to have every weekend off so she could attend a 10-weekend course at Logan College and earn her certification as a chiropractic sports physician. Dr. Hathaway, however, had to pay for all monetary expenses associated with the certification process. Dr. Hathaway earned her certification in October, Year 3. In January, year 4, Dr. Hathaway and the Specialists renewed the Employment Agreement without executing the stockholder arrangement provided for in the Employment Agreement. In September, Year 4, Dr. Mark Green retired as Managing Partner of the Specialists, and Dr. John Carter took over. Unfortunately, Dr. Hathaway did not get along with Dr. Carter as much as she did Dr. Green. Unlike Dr. Green, Dr. Carter did not place importance on the Specialists’ involvement in the community. Dr. Carter was only focused on the “bottom line” and only warmed to people with similar beliefs. Dr. Hathaway stated that Dr. Carter was always “cold” with her. Furthermore, Dr. Carter increased the rates for services and refused to provide a “special payment plan” for patients with financial needs. At this time, Dr. Hathaway was also expecting her first baby and was concerned that her commute from her home to Westerville would take away from valuable time that she wanted to spend with her child. She explained to
Lee, Lynne, & Parker, LL.C.
me that, although she and her husband planned to share parenting responsibilities equally, her husband is a financial analyst at a major financial institution in downtown Columbus. Consequently, she anticipated assuming most of the parenting responsibilities. Dr. Hathaway tendered her resignation at the Specialists on November 30, Year 4; her last day was December 31, Year 4. Dr. Hathaway gave birth to her son on January 15, Year 5, and opened her practice at the corner of Cleveland and 5th on March 15, Year 5. The practice was incorporated as Personal & Athletic Injury Therapists, LLC (“Injury Therapists”). Injury Therapists is located approximately nine miles southwest of the Specialists’ location in Westerville but is only two miles from the Ohio State University. Dr. Hathaway chose this location because she wanted to develop a relationship with Ohio State’s athletic department. Although Dr. Hathaway stated that she wanted to focus primarily on sports-related injuries at her new practice, she sent out announcement cards to all of her former patients from the Specialists, her former colleagues at the Specialists, and her friends and relatives. Dr. Hathaway also took out full page ads in The Daily Reporters, a publication sponsored by the Columbus Bar Association, and The On Call Newsletter, a publication sponsored by the Columbus Medical Association, that announced the opening of Injury Therapists. Dr. Hathaway did not take a master patient list and did not personally contact any members of the Specialists’ referral network. She did, however, take her own files (those of her own patients) and, thus, had the addresses of those patients. Dr. Hathaway believed that she parted on good terms with the Specialists, and, on her last day, her co-workers took her out to lunch. After opening in March, Year 5, Injury Therapists began to grow rapidly. In June, Year 5, Dr. Hathaway successfully negotiated a contract with the Ohio State University. Injury Therapists now assists in the rehabilitation of Ohio State’s injured female athletes other than female basketball players and female soccer players. At Ohio State, those two teams have their own training staffs. The Specialists placed a bid for this contract but lost. According to Dr. Hathaway, she prevailed because the women athletes preferred to have a female chiropractor (the Specialist only had male chiropractors who were certified as chiropractic sports physicians) and the Athletic Department liked Injury Therapists’ close proximity to campus. Additionally, a few attorneys and physicians that were once part of Specialists’ referral network have started referring patients to Dr. Hathaway for personal injury rehabilitation, and a few patients that saw other chiropractors at the Specialists have started going to Injury Therapists. These defections comprise of about 10% of Injury Therapists’ business and, according to Dr. Hathaway, result from her cheaper rates, friendlier service, and more convenient location. In August, Year 5, Dr. Hathaway added two other chiropractors to her practice, and one of them is certified as a chiropractic sports physician. In comparison to her good fortunes, Dr. Hathaway has recently heard that the Specialists will suffer a retraction during Year 5 for the first time in its history. Currently, there are nine chiropractors certified as chiropractic sports physicians in the greater Columbus area. On September 15, Year 5, Dr. Hathaway received a demand letter from the Specialist’s attorney stating that she will be sued for violating the non-compete clause of her Employment Agreement if she does not close her practice. Naturally, Dr. Hathaway does not want to close Injury Therapists in light of its success. From March, Year 5 until August, Year 5, Dr. Hathaway
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grossed $150,000 in revenue and believes that Injury Therapists will be even more successful in the future. As you can imagine, Dr. Hathaway is very upset about the demand letter. Before we can address whether or not Dr. Hathaway should consider negotiation or wait until she is sued to respond, I would like you to evaluate the enforceability of the non-compete clause. As you know, if it appears that a court will enforce the clause, we will most likely encourage Dr. Hathaway to settle this matter.
To assist Dr. Hathaway, please draft a memorandum evaluating the enforceability of the non-compete clause of the Employment Agreement. I believe the Employment Agreement is a valid contract, that there was an offer, acceptance, and consideration, and therefore, do not evaluate whether the entire Agreement is a valid contract. For purposes of this memorandum, and based on the facts presented by Dr. Hathaway, you should assume that Dr. Hathaway breached the non-compete clause. Therefore, please do not evaluate whether she breached it. Please simply focus on the enforceability of the NCC and do not address modification of the terms or damages.
