On certification to the Superior Court, Appellate Division, whose opinion is reported at 148 N.J. Super. 243 (1977).
For affirmance -- Chief Justice Hughes and Justices Clifford, Schreiber and Handler. For reversal -- Justices Sullivan and Pashman and Judge Conford. The opinion of the court was delivered by Clifford, J. Sullivan, J. (dissenting). Justice Pashman and Judge Conford join in this dissent.
[77 NJ Page 411] We granted certification, 75 N.J. 5 (1977), to examine the issue of whether a post-employment restrictive covenant ancillary to an employment contract between physicians is per se unreasonable and hence unenforceable, as held by the trial court. The Appellate Division reversed. Karlin v. Weinberg, 148 N.J. Super. 243 (1977). Being disinclined to adopt a per se rule, we affirm the Appellate Division and approve the longstanding case law of this State that a restrictive covenant ancillary to an
employment contract between physicians is enforceable to the extent that it protects a legitimate interest of the employer, imposes no undue hardship on the employee, and is not injurious to the public.
The factual setting is not at all unusual for this type of litigation. The parties are medical doctors engaged in the practice of dermatology. Plaintiff, Dr. Joseph Karlin, established his practice in Denville in 1966. In 1973 he employed defendant, Dr. Harvey Weinberg, on the latter's completion of his medical education, internship and residency requirements. Prior to this employment Dr. Weinberg had neither resided nor practiced medicine in New Jersey. The one-year employment contract, entered into on June 23, 1973 and effective July 1, 1973, contained the following termination clause, with which this litigation is concerned:
TERMINATION: (a) This agreement and Dr. Weinberg's employment hereunder shall be effective as of July 1, 1973, and shall continue for the term of one year but may be terminated at any time by mutual agreement in writing or by either party giving not less than 60 day's [sic] notice to the other party specifying the date of termination. Notwithstanding the termination of this agreement, the parties shall be required to carry out any provisions hereof which contemplate performance by them subsequent to such termination; and such termination shall not affect any liability or other obligation which shall have accrued prior to such termination, including but not limited to, any liability for loss or damage on account of default.
(b) Upon the termination of Dr. Weinberg's employment hereunder for any reason whatsoever, he shall not, for a period of five years thereafter, except with the written consent of Dr. Karlin, engage in the practice of dermatology within a 10 mile radius of 60 Broadway, Denville, New Jersey.
Prior to the expiration of this contract the parties decided to form a partnership and commenced negotiations over the terms of a partnership agreement. While no formal document resulting therefrom was ever executed, the parties do agree
that they practiced as partners after the expiration of the one-year employment contract. They disagree, however, as to whether their oral partnership arrangement contained any agreement covering a post-termination restraint. The partnership dissolved as of January 31, 1976 after a dispute over business practices. Plaintiff continued to conduct his practice at the previous address, 60 Broadway, Denville, and defendant opened his new medical office just a few doors away, at 92 Broadway.
The record contains an affidavit of Dr. Weinberg, dated March 6, 1976, in which he avers that from February 2, 1976, when he began to practice on his own, to the time of the affidavit he had treated approximately 130 patients, 60 of whom he had previously seen during his association with Dr. Karlin. Of the remaining 70 patients, 55 came to Dr. Weinberg in response to a newspaper advertisement announcing the opening of his new offices, and the other 15 were referred by other physicians. The affidavit discloses further that Dr. Weinberg's Denville practice requires some 16 hours a week, while four other part-time medical jobs in various locations in New York and New Jersey occupy the balance of his time.
Following Dr. Weinberg's opening of his separate practice, Dr. Karlin commenced this action seeking an injunction to enforce the restrictive covenant as well as damages for violation of that covenant appearing in the employment contract and in the partnership agreement under which the parties had practiced. Dr. Weinberg answered, denying the validity of the covenant, and filed a counterclaim for an accounting of his share of the partnership income and property. He also moved for an order of "partial summary judgment dismissing the complaint," urging that the restrictive covenant was invalid as a matter of law. In support thereof he relied principally on Dwyer v. Jung, 133 N.J. Super. 343 (Ch.), aff'd o.b., 137 N.J. Super. 135 (App. Div. 1975), holding that restrictive covenants among attorneys are per
se unreasonable and therefore void as contrary to public policy.
The trial court denied Dr. Karlin interlocutory relief and granted Dr. Weinberg's motion for partial summary judgment. In the course of an oral opinion the court noted the probable hardship on both Dr. Weinberg and the public should interlocutory relief be granted, and held that summary judgment dismissing the complaint was appropriate because restrictive covenants between physicians are per se unreasonable and hence unenforceable.*fn1 Dwyer v. Jung, supra, was thought by the court to be as applicable to physicians as to attorneys.
The Appellate Division reversed and remanded, holding that the trial court had erred in dismissing the complaint and in denying interlocutory relief as a matter of law. 148 N.J. Super. at 248. The court below reasoned that the rule of Dwyer v. Jung, supra, was based on canons of ethics governing lawyers, quite unlike those binding on physicians, and consequently Dwyer was inapplicable to restrictive covenants between physicians. 148 N.J. Super. at 246. It concluded that plaintiff had a legitimate interest entitled to protection and that this interest was recognizable absent a showing of detriment to the public. According to the Appellate Division such detriment had not been established conclusively in the proceedings before the trial court, given conflicting assertions set forth in affidavits of the parties on the community's need for Dr. Weinberg's services. Id. at 248.*fn2
The validity of restrictive covenants between physicians was first recognized in this jurisdiction in Mandeville v. Harman, 42 N.J. Eq. 185 (Ch. 1889). In Mandeville defendant was employed by plaintiff under a contract containing a covenant by which defendant agreed not to practice medicine or surgery in Newark "at any time" after termination of his employment with plaintiff. 42 N.J. Eq. at 188. Defendant established an office in Newark upon expiration of the contract. Plaintiff thereupon sought an injunction enforcing the restrictive covenant. In discussing the applicable principles the vice-chancellor recognized that employment covenants between physicians were enforceable if reasonable.
The covenant under consideration is a contract in restraint of trade. Such is the designation universally applied to such engagements. And no principle of law is more generally recognized than that a contract which precludes a person from the right to employ his talents, his industry or his capital in any useful undertaking, is void. Whether the restraint be general or partial * * * the law starts out with the presumption that a contract in restraint of trade is void, and it is only by showing that the contract is good that this presumption will be rebutted. The rule is, not that a limited restraint is good, but that it may be good. It is valid when the restraint is reasonable when it imposes no shackle upon the party which is beneficial to the other. The authorities are uniform that such contracts are valid when the restraint they impose is reasonable, and the test to be applied in determining whether the restraint is reasonable or not * * * is this: to consider whether the restraint is such only as to afford a fair protection to the interest of the party in favor of whom it is given, and not so large as to interfere with the interest of the public. Whatever restraint is larger than the necessary protection of the party can be of no benefit to either. It can only be oppressive, and if oppressive, it is, in the eye of the law, unreasonable and void, on the ground of public policy, as being injurious to
the interests of the public. The rule, as thus stated, is the ...