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Keywords

contractinjunctiontrialcorporation
contractinjunctiontrialwillcorporationequitable relief

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Phoenix Orthopaedic Surgeons, Ltd. v. Peairs, 164 Ariz. 54, 790 P.2d 752

Facts

Phoenix Orthopaedic Surgery, Ltd. (POS) is a professional corporation of orthopaedic surgeons with four shareholders. Dr. Peairs joined POS in 1985 under an employment contract that included a restrictive covenant preventing him from practicing orthopaedic medicine within a five-mile radius of POS's offices for three years after termination. After notifying POS of his resignation in 1987, Dr. Peairs began practicing within the restricted area, prompting POS to seek a preliminary injunction to enforce the covenant.

In 1984, POS placed an advertisement in a publication of the American Academy of Orthopaedic Surgeons offering employment for a physician with the specialty of sports medicine. Dr. Peairs answered the advertisement and was furnished with a written agreement in May 1985. This proposed agreement contained a covenant not to compete, which provided as follows: 11. Practice of Medicine by Peairs Upon Termination of this Agreement. In the event of the termination of this agreement, Peairs agrees he will not practice orthopedic medicine and surgery within a five (5) mile radius of each office of Phoenix from which it is then practicing medicine for a period of three (3) years from (i) the date of termination or (ii) the last day of the current term of this agreement should it not be extended for an additional term.

Issue

The main legal issues were whether the employment contract had expired, whether the restrictive covenant was ambiguous or overbroad, and whether it contravened public policy.

Dr. Peairs contends that the trial court erred in issuing the preliminary injunction because (1) the employment agreement had expired, (2) the employment agreement is ambiguous and should be construed against POS, (3) POS suffered no irreparable harm and has an adequate remedy at law, (4) POS is barred from obtaining equitable relief, (5) the restrictive covenant is overbroad and therefore unenforceable, and (6) the restrictive covenant violates the public policy of Arizona.

Rule

A restrictive covenant in an employment agreement is valid and enforceable by injunction when it does not exceed what is reasonably necessary to protect the employer's business, is not unreasonably restrictive of the employee's rights, does not contravene public policy, and is reasonable as to time and space.

A restrictive covenant in an employment agreement is valid and enforceable by injunction when the restraint does not exceed that reasonably necessary to protect the employer's business, is not unreasonably restrictive of the rights of the employee, does not contravene public policy, and is reasonable as to time and space.

Analysis

The court found that the employment contract was still in effect due to oral modifications made by both parties. It determined that the restrictive covenant was not ambiguous and that the activities Dr. Peairs engaged in constituted the practice of orthopaedic medicine. The court also ruled that the covenant was reasonable in scope and did not violate public policy, as there were sufficient other orthopaedic surgeons available in the area.

Sufficient evidence exists to support the trial court's conclusion that Dr. Peairs and POS orally modified the terms of the employment contract, therefore, the contract was still in effect on August 27, 1987, when Dr. Peairs sent a letter terminating the contract on 60 days' notice.

Conclusion

The court affirmed the trial court's decision, ruling that the restrictive covenant was enforceable and that the preliminary injunction against Dr. Peairs was appropriate.

The court affirmed the trial court's decision, ruling that the restrictive covenant was enforceable and that the preliminary injunction against Dr. Peairs was appropriate.

Who won?

Phoenix Orthopaedic Surgery, Ltd. prevailed in the case because the court upheld the enforceability of the restrictive covenant, finding it reasonable and not contrary to public policy.

POS is a professional corporation of orthopaedic surgeons. The four shareholders are four physicians who practice out of three offices in northwest Phoenix.

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