Business Law 13th Edition by Frank Cross, Kenneth Clarkson, Roger LeRoy Miller

Exercise 22

BACKGROUND AND FACTS?Cardiac Study Center is a medical practice group of approximately fifteen cardiologists. In 2002, Cardiac hired Dr. Robert Emerick as an employee. In 2004, Emerick became a shareholder of Cardiac. He signed a shareholder agreement and an employment contract that included a covenant not to compete. Under the covenant, any physician who left the group would have to promise not to practice competitively in the surrounding area for a period of five years. In 2005, patients and other medical providers began to complain to Cardiac about Emerick's conduct. Some physicians stopped referring patients to Cardiac as a result. Finally, Cardiac terminated Emerick's employment in 2009. Emerick sued Cardiac seeking a declaration that the covenant not to compete was unenforceable. He prevailed at trial, and Cardiac appealed.
IN THE LANGUAGE OF THE COURT
Armstron g, P.J. [Presiding Judge]
* * * * * * * Courts will enforce a covenant not to compete if it is reasonable and lawful. We test reasonableness by asking (1) whether the restraint is necessary to protect the employer's business or goodwill, (2) whether it imposes on the employee any greater restraint than is reasonably necessary to secure the employer's business or goodwill, and (3) whether enforcing the covenant would injure the public through loss of the employee's service and skill to the extent that the court should not enforce the covenant, [that is,] whether it violates public policy. [Emphasis added.] * * * Specifically, an employer has a "legitimate interest in protecting its existing client base" and in prohibiting the employee from taking its clients.
* * * Cardiac provided Emerick with an immediate client base and established referral sources when he moved to the area. Moreover, Emerick had access to Cardiac's business model and goodwill. These are all protectable business interests that the trial court should have considered in assessing the covenant's enforceability.
DECISION AND REMEDY The state appellate court ruled in favor of Cardiac Study Center. The court reversed and remanded the trial court's decision and held that the covenant not to compete was reasonable.
THE GLOBAL DIMENSION Should an employer be able to restrict a former employee from engaging in a competing business on a global level? Why or why not?
WHAT IF THE FACTS WERE DIFFERENT? Suppose that Emerick had authored a nationally published book, How to Avoid Cardiac Surgery through Diet and Exercise. Could Cardiac have blocked the book's distribution in Cardiac's area based on the covenant not to compete?