PR Supreme Court upholds validity of noncompete clauses for independent contractors

Puerto Rico Supreme Court Associate Justice Roberto Feliberti Cintrón wrote the majority opinion. (poderjudicial.pr)

By THE STAR STAFF

The Puerto Rico Supreme Court held that noncompete clauses in professional services contracts remain valid and enforceable when assigned to another party, provided the restrictions are reasonable and the contractor demonstrates consent through their actions.

The decision, announced last week, is the first time Puerto Rico’s highest court has ruled on whether noncompete agreements can be enforced when a contract with an independent contractor is assigned to another party.

The case, MCG Therapy Group, LLC v. Arlene J. Maestre Rivera; AM Therapeutic Service for Children, Inc., began when MCG Therapy Group sued psychologist Arlene J. Maestre Rivera for allegedly violating a noncompete clause in her 2022 contract with The Able Child, a private provider of psychological services for students in the Department of Education’s special education program.

Associate Justice Roberto Feliberti Cintrón wrote the opinion, noting that The Able Child transferred all contracts, including Maestre Rivera’s, to MCG Therapy Group on Oct. 1, 2022. The court observed that Maestre Rivera continued working, invoicing, and accepting payments from MCG for several months after the transfer, without objection or attempts to terminate the relationship.

The court highlighted that the contract’s noncompete clause required the specialist to wait one year after resignation or nonrenewal before providing services to the same students “through another corporation, direct contract with the Department of Education, Remedio Provisional, or any other means not involving MCG and The Able Child.” The clause also imposed financial penalties for violations.

MCG claimed that Maestre Rivera broke the agreement when she started her own company, AM Therapeutic Service for Children, and signed a direct contract with the Department of Education to serve the same students while still working for MCG. The company asked for more than $800,000 in damages.

The trial court dismissed the noncompete claim, saying MCG could not enforce the clause because it did not have a written agreement directly with Maestre Rivera. The Court of Appeals agreed, deciding that restrictive covenants could only be passed on if the contractor signed a new written agreement.

The Supreme Court overturned the lower courts’ decisions, finding that Puerto Rico’s contract law allows contracts to be assigned unless the contract specifically says otherwise. The justices also said that a person can show consent to an assignment by continuing to work under the contract after being told about the transfer.

“Silence, when one has the duty and opportunity to speak, may constitute consent,” the Court wrote, noting that Maestre Rivera continued working for MCG for months after the assignment and accepted payment under the same terms.

The high court also disagreed with the lower courts’ view that the noncompete clause needed a new written agreement. The justices said that since the clause was in the original contract, it automatically transferred with the assignment.

The Supreme Court used a reasonableness standard for the noncompete clause, similar to what is used in employment and business cases. It said noncompete agreements are valid if they protect real business interests, have reasonable time and location limits, and do not unfairly stop someone from working or hurt the public interest.

Using this test, the top court decided the clause was reasonable. It only applied to students who had already been assigned to the contractor, lasted for one year, and aimed to prevent disintermediation, which means bypassing the company to work directly with its clients.

The case will now go back to the Court of First Instance, where MCG’s claims for damages and tortious interference will be considered further.