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Medical lab sues its former CEO for breach of contract

| Oct 17, 2014 | Business Contracts & Disputes |

Businesses in North Carolina and everywhere else are usually concerned about losing top executives, who may take proprietary material when they leave. An additional concern is that the former employee will then compete with the business. For these reasons, it is common for a company to have its vital employees sign non-compete contracts in which they promise not to compete with the company for a specified number of years after the cessation of employment, or face a breach of contract suit for damages.

A typical employment package also includes a provision or agreement in which the employee represents that he will not take any customer lists or secret proprietary information when he leaves. The agreements are executed when the individual begins his employment, or shortly thereafter. This makes them part of the contract for employment and enforceable for the breach thereof.  

However, the courts have consistently held that there are limits to a company’s right to prevent the employee from competing. Thus, the general rule is that such agreements must be reasonable, and they must be limited in both time and geographical area in order to be enforceable. Two large regional medical labs are currently in court on a dispute that involves these issues.

The Mayo Clinic, on behalf of its for-profit Mayo Medical Labs, recently filed a lawsuit against the former CEO of its medical labs division. It alleges that he left Mayo on Sept. 30 and by the next day was working as vice President and chief laboratory officer of Quest Diagnostics, Inc., a major competitor.  The lawsuit accuses the former CEO of stealing trade secrets and breach of contract.

It’s unclear from news reports whether there is a non-compete agreement, but that is likely the basis for the breach of contract count of the complaint. In North Carolina and other states, such agreements must be limited to a few years and cannot restrict the former employee interminably. In this case, the defendant did not wait at all, according to the complaint. If that is true, and if a valid non-compete agreement exists, it appears that the defendant has likely violated it.  

Source: Minneapolis / St. Paul Business Journal, “Mayo Clinic says former executive pilfered secrets for rival“, Mark Reilly, Oct. 16, 2014

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