Comprehensive Psychology System, P.C. v. Prince

On February 7, 2005, the Appellate Division in Comprehensive Psychology System, P.C. v. Prince upheld the trial court’s refusal to enforce a restrictive covenant in an employment contract for professional services by a licensed psychologist. In the lower court, the trial judge refused to restrain Dr. Prince from contacting any patients or contacting referral sources because he deemed the enforceability of these restrictions barred by NJAC 13:42-10.16, a provision of the rules adopted by the Board of Psychological Examiners. The provision reads as follows:

A licensee shall not participate in offering or making a partnership or employment agreement that restricts the right of a licensed health care professional to practice the licensed profession after termination of the relationship, except an agreement concerning the benefits upon retirement.

On appeal, the employer contended that the regulation was amended on April 5, 2004 and this amendment allowed non-competition agreements:

The licensee shall not enter into any business agreement that interferes with or restricts the ability of a client to see or continue to see his or her therapist of choice.

The Appellate Division failed to apply the holding in Karlin v. Weinberg, 77 N.J. 408 (1978), which held that restrictive covenants ancillary to employment contracts between physicians are enforceable to the extent that they protect the legitimate interest of the employer, impose no undue hardship on the employee, and are not injurious to the public. Finding that the regulation was similar into that restrictive covenants between attorneys are per se unreasonable and unenforceable as injurious to the public interest, the Appellate Division ruled that the boards new language for the regulations did not allow the enforceability of a restrictive covenant against a psychologist.

Finally, the Appellate Division noted that a psychologist who changes his office locations, voluntarily or involuntarily, has a duty to inform patients of the change and the new location and phone number. If not, the court noted that this may be akin to patient abandonment.

New Jersey’s employers must be careful in drafting restrictive covenants in employment agreements to ensure their enforceability in court.