Covenant Not to Compete -- Enforceable

In a dispute involving a covenant not to compete, the Court of Appeals of the State of Michigan, on March 24, 2009, decided that the covenant not to compete contained in the employment contract for Dr. William G. Stahl, III ("plaintiff"), with U.P. Digestive Disease Associates, P.C. ("defendant"), was not enforceable.

The covenant not to compete in his two year employment contract read:

Covenant Not to Compete. PHYSICIAN pledges active and industrious performance of duties in the CORPORATION’S best interests. To that end, if PHYSICIAN separates from employment service with the CORPORATION, PHYSICIAN shall not compete with CORPORATION within 150 miles of the City of Marquette for a period of two (2) years after such separation, unless the terms of such competition have been agreed to in writing by the Board of Directors of the CORPORATION, acting by the remaining Stockholders.

At the expiration of the term of his contract in January 2006, Dr. Stahl was notified that he would not be offered a “partnership.” Instead he was offered the opportunity to remain in the practice as an associate. He declined that opportunity.

Dr. Stahl was notified on January 6, 2006 that the defendant intended to enforce the “non-competition covenant.” Later that same month, plaintiff filed suit against defendant seeking a declaration that the covenant was “null and void and unenforceable.” In March 2006, plaintiff signed a contract of employment with Marquette General Health System to work as a hospitalist. The defendant filed a counter-complaint for breach of the covenant.

The Circuit Court that heard the case prior to the Court of Appeals decided that “because plaintiff never “separated” from defendant’s gastroenterology practice, the noncompete covenant never took effect. The Michigan Court of Appeals agreed and affirmed the judgment of the Circuit Court.