Effects on a Non-Compete Agreement When a Company Splits and Grants a License to the New Entity

Multicare Physicians & Rehabilitation Group, P.C. was a Connecticut company that provided healthcare services and maintained offices in Milford, Ansonia, Wallingford, and Cheshire.  Dr. Wong began to work for the company and executed an employment agreement on January 21, 2004, pursuant to the company’s employment regulations and standards.  There was a restrictive covenant in paragraph nine of the agreement that prohibited Dr. Wong from practicing within fifteen miles of “the corporation’s offices” within the four towns previously mentioned for a period of two years following termination.  The agreement stated that Physicians would be entitled to equitable and legal damages (a court ordered injunction and monetary relief respectively) in the event of a breach.

The company split up in the summer of 2004 into Physicians and a new company, Multicare Medical Center, P.C. (“Medical”), that practiced out of the Milford and Ansonia offices previously occupied by Physicians.  Physicians licensed “the Name” to Medical in exchange for consideration for $10, and this license gave Medical the right to brand and advertise itself as Physicians.  Medical officially became “independently owned company” on August 6, 2004.

In August 2005, Dr. Wong gave Physicians notice that he would not be renewing his employment contract with them and then proceeded to accept a part-time position at Medical beginning in December 2005.  Physicians learned of Dr. Wong’s new employment and interpreted this as in direct violation of the non-compete clause contained in the employment agreement.  Physicians sued Dr. Wong in Connecticut state court and requested enforcement of the restrictive covenant.

The Court’s Decision

The court had to decide whether Dr. Wong had violated the non-compete agreement by working as an employee of Medical, for which it concluded that he had not breached the employment contract with Physicians and denied the company’s request for an injunction restraining Dr. Wong’s further employment at Medical.  The main factor that the court analyzed to reach this conclusion was the existence and terms of the license granted to Medical by Physicians on June 30, 2004.

The court made it clear that since the company split in 2004, Physicians did not have any offices in Milford or Ansonia and as such, Dr. Wong was free to practice medicine in these towns without violating the non-compete clause.  Medical was permitted to operate as Physicians by using its name pursuant to the license but the offices in Milford and Ansonia were not by any means components of Physicians’ business structure or operations.  Those offices, while under the trade name of Physicians, were wholly owned and operated Medical business offices.

This decision highlights the special relationship between companies when they split and one party grants the other a license to continue to operate under the same trade name.  The court emphasized that while the companies were the same with respect to their trade name, for all other intents and purposes they were completely separate companies with different business structures and operations.

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