New Jersey - Volume XII, Number 6 - June, 2003

NEW JERSEY COURT APPROVES EMPLOYEE WRONGFUL TERMINATION SUIT OVER RESTRICTIVE COVENANTS

Restrictive covenants are provisions generally included in physician employment agreements that impose limits on departing physicians competing against their former practices. In the past, litigation over these provisions was usually limited to the practice suing to enforce, or the former employee suing for relief from, the covenant’s restrictions. However, in a recent New Jersey Appellate Court decision, an existing employee was permitted to claim that she was wrongfully terminated because she refused to sign a restrictive covenant which she believed was unfair. The Court ruled that, to prove her case, the employee does not have to establish that the covenant actually was overly broad, but only that she had a good faith belief that it was. To prevent such litigation, practices must insure that the covenants in their employment agreements are reasonable in scope, duration, geographic reach, and all other respects. Also, language must be included that the employee acknowledges such reasonableness. Kern Augustine can assist practices in all aspects of restrictive covenants and other employment law and contract issues.

INSURANCE REFORM PACKAGE EXPANDS INSURANCE FRAUD CRIMES & PENALTIES; ESTABLISHES WHISTLEBLOWER REWARD PROGRAM

The automotive insurance reform legislation signed into law by Governor McGreevey on June 9th, established a new crime of “insurance fraud” to directly and comprehensively criminalize conduct involving fraud against insurance companies. In addition to new criminal penalties, the law provides new civil and administrative remedies including mandatory forfeiture of professional licenses for physicians and others who are convicted of insurance-related crimes.

The law also provides members of the public with significant incentives to come forward, when they may have knowledge or a reasonable suspicion of a person committing insurance fraud, by establishing an Insurance Fraud Detection Reward Program. This program requires the New Jersey Office of Insurance Fraud Prosecutor to maintain a 24-hour, toll-free insurance fraud hotline to receive such information and authorizes payment of a reward of up to $25,000 to persons providing information leading to the arrest, prosecution and conviction of persons or entities who have committed health care claims fraud, insurance fraud or any other criminal offense related to an insurance transaction. Persons reporting in good faith would have immunity from liability for reporting. The insurance fraud provisions of the law become effective immediately.

NOTE: A recent notice of proposed rule-making would revise the federal physician self-referral regulations (Stark law) by bringing diagnostic and therapeutic nuclear medicine services and supplies within the self-referral prohibition, as well as eliminating the exception for certain physician ownership or investment interests in specialty hospitals. While the future of this proposal remains uncertain, physicians should seek counsel before entering into new investments in these services.  

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