Earlier this month, the Franklin County Court of Appeals affirmed a judgment for physicians and a medical officer manager who were alleged to have violated post-employment restrictive covenants and misappropriated trade secrets. Buckeye Wellness Consultants, L.L.C. v. Hall, 2022-Ohio-1602. The Court agreed that the one-year terms of the employment agreements did not automatically renew when the contracts lacked language indicating automatic renewal and both physicians indicated that they wanted to renegotiate their contracts before they ultimately resigned between six and 16 months following the expiration of their agreements. The non-solicitation clauses only applied during the term of the agreement and one for one year after termination of the agreements. The clause had expired before one of the physicians had resigned. While the court indicated that the clause could not be enforced against the other physician who had resigned only six months after his agreement expired, the Court also pointed out that the employer had failed to identify a single patient who had been inappropriately solicited and refused to find notification of a change of practice to constitute a solicitation. The Court also agreed that one non-compete was unenforceable because the employee never worked in the restricted territory. The Court also found that the other non-compete did not apply because the employee voluntarily resigned, his agreement implied a distinction between termination and (voluntary) separation, and the clause only applied “for one year “following termination of the Employee.” Finally, the Court rejected the trade secret claim because the employer failed to produce any evidence that the defendants had inappropriately accessed the password protected trade secret lists or used them.
According to the Court’s opinion, the defendants all worked
at the same medical office before being hired by the plaintiff employer. Each physician also practiced elsewhere. The
two defendant physicians entered into one-year employment agreements which
contained restrictive covenants prohibiting competition and solicitation of
patients. One non-compete applied “so long as the
Employee is employed by the Employer, and for a period of one (1) year following
termination of the Employee.” The other
non-compete applied for one year “following termination by the Medical
Doctor/Physician.” Both non-solicitation clause applied only for
one year following “after termination of this agreement.” Interestingly, the agreements did not provide
for automatic renewal. Both physicians attempted to negotiate better terms
after the first year and, when unsuccessful, submitted their resignations. One resigned six months after his agreement expired
and one 16 months after his agreement expired. The
office manager never signed an agreement or non-compete. They ultimately formed a new practice and
all patients were informed by the defendants and plaintiff of their move. The employer then filed suit for breach of
contract, tortious interference, theft of trade secrets, conversion,
conspiracy, unjust enrichment, etc. The
trial court entered judgment for the defendant employees.
The most significant issue was when the one-year restrictive
covenant periods commenced and expired. As
an initial matter, both clauses applied “during the term of the Agreement” and
for “so long as the Employee is employed” by the employer. Both non-solicitation
clauses expired one year after termination of the agreements. The
employer argued that the term of the agreements and non-competes continued
until termination of employment, but the Court disagreed. Each clause indicated that “[t]he term of
this Agreement shall commence on the Effective Date of this Agreement and shall
continue for one (1) year(s) thereafter” and that the parties could revisit the
physician’s compensation at the end of each contract year. The agreements were silent as to the manner
or duration of any renewal. The employer
asserted that renewal was implied, but the Court disagreed. The language indicating that the agreement had
a term of one -year was clear and unambiguous, particularly when renewal was
never mentioned. Generic references in
other clauses of the agreement to potentially renewable terms was not a
substitute for an explicit term discussing how long and when the contract would
be renewed. The reference to “year(s)”
did not make the agreement ambiguous because it simply meant that the term “one”
could have been made “five” while being negotiated.
The Court then addressed whether the restrictive covenants
continued to apply after the agreements expired on their terms.
The general rule of contracts under such a situation was " '[w]here a contract of employment for a definite time is made and the employee's services are continued after the expiration of the time, without objection, the inference is that the parties have assented to another contract for a term of the same length with the same salary and conditions of service, following the analogy of a similar rule in regard to leases.' . . . . The employee who continues working under the same terms and conditions after the employment agreement has expired becomes a hold-over employee.
However, the presumption that arises from an employee's continued employment is "rebuttable by proof that a new contract for the continued period has been entered into, or by facts and circumstances showing that the parties did not intend to continue upon the terms and conditions of the original contract."
In this case, at the expiration of the employment
agreements, both physicians indicated their displeasure with their terms and
conditions of employment and attempted to negotiate new agreements. Among
other things, one wanted to become a part-owner and the other wanted to work
more days each week and spend more time with each patient and see more investment
in EMR, etc. “The evidence shows that
the doctors did not intend to continue working under the terms and conditions
of the original employment agreements, so a new one-year contract does not
arise by implication of law.”
Accordingly, the terms of their prior written agreements no longer bound
them and they became employed at will, entitling each of them to resign prior to
completing another year of employment.
The non-compete language was slightly different for each physician
and their employment agreements expired at different times. With respect to Dr. Santiago, the Court
agreed that the non-solicitation covenant – which applied for 12 months after
expiration of the employment agreement -- had expired by the time he had resigned 16
months after his employment agreement had expired. The duration of the non-compete was
ultimately irrelevant because he always worked outside the 5-mile restricted
radius. Both covenants applied so long
as they were employed and were triggered by their terminations. Although
the Court thought that the language “termination by” the physician was ambiguous
when Dr. Santiago had voluntarily resigned and the agreement did not define “termination,”
the ambiguity was ultimately irrelevant.
In other words, the non-solicitation clause did
not apply because it had expired before he resigned. The non-compete duration was irrelevant
because he had never worked inside the restricted territory.
Dr. Hall’s situation was more complicated because he
resigned only six months after his agreement had expired (before the
non-solicitation clause expired) and the duration and territory of his non-compete
were different:
During the term of this Agreement, including the renewals hereof, so long as the Employee is employed by the Employer, and for a period of one (1) year following termination of the Employee, Employee shall not . . . . Employee shall further not solicit any patient or employee of Employer for a period of one (1) year after the termination of this agreement.
Unlike Dr. Santiago’s agreement, Dr. Hall’s agreement
contained a separate provision governing terminations which apparently did not explicitly
apply to this dispute. Also, unlike Dr.
Santiago’s agreement, Dr. Hall’s agreement defined “employment separation” as
"’the separation or termination of Employee's employment with the Company,
regardless of the time, manner or cause of such separation or termination.’ . . . . ‘13(D) also refers to actions based on
an employee's ‘termination or separation.’" While “separation”
was never mentioned in the non-compete clause, the definition of employment
separation indicated that termination and separation were different terms with
different meanings. “The employment
agreement clearly provided different meanings for the two terms, and they are
not interchangeable.” Because the
non-compete only applied after employment if Dr. Hall were terminated, the
Court concluded that it did not apply after employment if he voluntarily resigned.
The Court also rejected the claims that the defendants had
misappropriated trade secrets (i.e., a password protected list of patient names
and attorney referral sources). The
Court of Appeals found that the employer failed to produce any evidence that
the lists were misappropriated, how or when the lists were obtained or how or
when they were used. Indeed, the
employer could not identify a single patient who was supposedly misappropriated
or solicited. The Court concluded that
it was mere speculation that the employer lost patients and the defendants gained
patients based only on a misappropriation of password protected patient and
referral source lists.
The Court rejected any argument that patients were
improperly solicited when they were informed that the defendant physicians had
changed medical practices:
Hall and Santiago, pursuant to their professional obligations, informed their patients that they were moving to a new location. Doctors have an obligation to their patients to ensure continuity of care and prevent a patient from being abandoned. These letters do not rise to the level of solicitation.
It is notable that there are a limited number medical providers who accept new workers' compensation patients, and so it is logical that patients will seek continuing care with a familiar provider, even when the provider moves. In addition, when you consider that Spanish speaking patients only have one or two medical providers who speak fluent Spanish, Santiago is in great demand by both patients and attorneys, . .
Indeed, it appears that patients followed Dr. Santiago from
his prior practice to the employer when he was hired and he was always busy with
Spanish-speaking patients.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
