Court says CVS exec’s move to PillPack violated noncompete

By | June 20, 2019

Dive Brief:

  • CVS Pharmacy’s agreement restricting a former senior executive’s future employment was valid and enforceable, a federal judge ruled Tuesday. The employee, who headed up CVS Caremark’s retail network, went to work for Amazon’s PillPack while the noncompete was still in effect, a move the judge found violated the agreement because he was providing similar services to a competitor. 
  • There’s a high bar for awarding injunctive relief, but the judge said CVS clearly met it, providing “substantial proof” John Lavin’s new employment for PillPack violated the terms of the noncompete agreement. CVS paid Lavin $ 150,000 to refrain from working for competitors for an 18-month term, but during the course of the agreement, Lavin went to work for PillPack.
  • The ruling likely will mean Lavin will have to stop working for PillPack for the duration of the noncompete.

Dive Insight:

Amazon’s PillPack unit, which aims to disrupt the nation’s pharmacy business, is now roiling employment waters, too. CVS, like other pharmacy chains, is involved in an ongoing struggle with Amazon for dominance in the mail-order prescription delivery market.

“The Court does not grant a preliminary injunction to enforce a non-compete clause lightly,” Judge John J. McConnell Jr. of the U.S. District Court for the District of Rhode Island said. “It is aware of the narrow and restricted application Courts should give to the agreements under Rhode Island law.”

But the court said the evidence in favor of CVS was clear. 

“After reviewing all the evidence, the Court finds that the services Mr. Lavin was to perform at PillPack, a Competitor in the industry, are substantially like the services he provided for CVS Caremark,” the opinion said. “Moreover, the Court finds that it is highly likely that Mr. Lavin’s new employment will result in the disclosure of Confidential Information to CVS’s Competitor.”

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The original job description for which PillPack hired Lavin included negotiating with payers, similar to his former position at CVS, the opinion said. Lavin was also expected to contribute to PillPack’s overall growth strategy and help drive its long-term disruptive strategy.

And there’s no doubt Amazon has disrupted the industry. PillPack delivers individualized packages of pre-sorted medicines, meant to help people manage multiple daily medications such as for chronic conditions.

When Amazon announced its estimated $ 1 billion acquisition of PillPack about a year ago, it sent shares of retail pharmacy companies like CVS and Walgreens plummeting. 

Non-competes, also called restrictive covenants, can have legitimate business purposes, but they must meet certain criteria to be enforceable. The agreements must be reasonable in scope and companies often have to show that violation of the agreement would cause them substantial harm, for example. In this case, the judge said CVS easily met that standard.

For executives like Lavin, companies generally draw up noncompetes with terms from three to five years, Autumn Gentry, a litigator with Dickinson Wright in Nashville, told Healthcare Dive. The relatively short 18-month period of the agreement here was a point in CVS’ favor in the litigation. High-level employees like Lavin generally have quite a bit of knowledge about their competitors’ financing, pricing, terms and conditions, she said. 

“The higher up you go in the industry, the more likely it is an agreement will be enforced,” Theresa Connolly, an employment defense attorney and co-managing partner of the Washington, D.C. offices of Fisher Phillips, told Healthcare Dive.

Left unanswered is what the remedy here will be. It’s likely Lavin will be required to stop working for PillPack for the duration of the agreement terms. It’s possible his violation of the agreement will start the clock anew on the 18-month employment prohibition, the remedy CVS asked for in its complaint. CVS is also seeking monetary damages and attorney’s fees.

PillPack’s Jacquelyn Miller said the company declined to comment, and no one at CVS was available to respond to a request for comment.

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