A December 30, 2010 decision of New York’s Appellate Division, Fourth Department, in James V. Aquavella, M.D., P.C. v. Viola, should be noted by legal practitioners dealing with issues of enforceability of non-competition agreements.

The plaintiffs — an ophthalmologist named James V. Aquavella, M.D. and his professional corporation — sued Ralph S. Viola, M.D., an employee who in 2002 resigned and opened a competing practice within 300 yards of the plaintiffs’ practice. Plaintiffs claimed breach of a non-compete provision that, they argued, barred Viola from competing with plaintiffs for two years.

In 1996, Viola began working for Urban Oncology Service, P.C. (which eventually sold assets of the ophthalmology practice to plaintiffs) pursuant to a written contract that included a provision prohibiting Viola from competing with that entity’s business for two years after termination of Viola’s employment. In 1998, Viola entered into an oral employment agreement with plaintiffs. According to plaintiffs, this oral agreement incorporated all of the terms and conditions of the 1996 written agreement, including the non-compete clause.

In 2002, Viola resigned and began competing against plaintiffs by opening his own practice just 300 yards away. Plaintiffs sued, and secured a jury verdict determining that Viola had violated the non-compete clause, and that Viola was liable to plaintiffs for damages of nearly $250,000. Viola moved for judgment notwithstanding the verdict, and the trial court (Supreme Court, Monroe County) granted his motion. The Appellate Division, Fourth Department has now affirmed.

The Appellate Division reasoned that the non-compete clause that plaintiffs sought to enforce sets forth a two-year time period, and thus is subject to New York’s statute of frauds. Further, the Court rejected the argument that the 1996 written agreement satisfied the statute of frauds, because there was no writing evidencing the incorporation of the 1996 written agreement into the 1998 oral employment agreement. This lack of writing led the Court to find that plaintiffs’ version of the 1998 oral agreement is unenforceable and void under the statute of frauds.

The lesson for practitioners here is that a non-compete provision extending for one year or more may not be orally extended in a subsequent agreement. Best practice dictates that non-compete clauses of such duration always be evidenced by a writing signed by the employee.