Restrictive covenants have received relatively intense scrutiny by courts in recent years, as lawmakers seek to balance employers’ and employees’ respective rights—restrictive covenants acknowledge that employers invest time and monetary resources in their employees’ careers and seek to retain talent, while at the same time, employees generally have the right to change employment and move freely. For the most part, restrictive covenants remain legal so long as they are reasonable. For example, Georgia’s Restrictive Covenant Act, O.C.G.A. § 13-8-50 et seq., provides that restrictions are permissible but must be “reasonable in time, geographic area, and scope of prohibited activities.” O.C.G.A. § 13-8-53(a).
On Monday, August 22, 2022, a New Jersey state judge denied a “premature” summary judgment motion brought by Dr. Craig Granowitz, the former Chief Medical Officer of Amarin Pharma, Inc. Dr. Granowitz quit his job at Amarin and took the same job at Lexicon Pharmaceuticals Inc., within the one-year time period of the restrictive covenants contained in his employment agreement with Amarin. Amarin also alleges that he solicited Amarin employees to work for Lexicon within the one-year period.
Pursuant to Amarin and Dr. Granowitz’s employment agreement, he was entitled to about $545,000 in severance payments, but Amarin stopped paying after $204,000 in payments were made once it found out about Dr. Granowitz’s potential breach of his restrictive covenants. Dr. Granowitz filed suit, seeking in part a declaratory judgment that he was entitled to the remaining severance payments. Amarin filed an answer and counterclaims, alleging breach of the restrictive covenants and restitution of the monies already paid. Dr. Granowitz claimed that the two companies are not competitors, so he was not in breach.
The court, in denying Dr. Granowitz’s motion, held that the parties had not yet conducted discovery and important questions of fact remained. Amarin is now entitled to obtain documents and depose the plaintiff and others to establish whether there has been a breach of the restrictive covenants by Dr. Granowitz.
This case continues to demonstrate that restrictive covenants are generally enforceable. Of course, they must be properly drafted to be reasonable and withstand judicial scrutiny. Employees should be mindful of the laws of the state that govern their employment agreements before entering into an agreement or changing employment. Employees should also read the terms of any restrictive covenants carefully and consult a lawyer to ensure compliance.
The attorneys at Chilivis Grubman have experience in reviewing and litigating restrictive covenants. If you need assistance with such a matter, please contact us today.