CVS Pharmacy sued competitor Capital Rx in federal court on Thursday, alleging the startup pharmacy benefit manager is relying on an “unenforceable and unreasonable” contract to prevent a former employee from jumping ship from the New York-based business.
The suit, filed in the U.S. District Court of Massachusetts, claimed Capital Rx has threatened to sue CVS multiple times for violating a non-compete agreement Dr. Suresh Yarlagadda signed the day before he started work at the online pharmacy in May 2021. Buried in an 11-page contract is a single paragraph that states Yarlagadda cannot work at any competitor of Capital Rx’s for six months after leaving his job. He also caqn’t hold more than 3% worth of securities at any business Capital Rx designates as a competitor, according to the complaint.
Yarlaggada was apparently unaware of these conditions when he quit Capital Rx in late July and accepted a position at CVS, where he was scheduled to begin in early August. But before he could start working at the Woonsocket, Rhode Island-based PBM, Capital Rx sent CVS a letter saying that it intended to “take any and all actions necessary to protect its rights” and enforce Yarlagadda’s non-compete agreement, the suit said. Capital Rx stated that Yarlagadda could not legally begin work at CVS until late January 2022.
CVS delayed the pharmacist’s start date. After investigating Capital Rx’s claims, CVS informed the four-year-old company that its non-compete was not enforceable under Massachusetts law, since the contract was not provided 10 days before Yarlagadda began work and did not offer to compensate him for the time he is restricted from working for a competitor, the suit said. Yarlagadda lives in Massachusetts and worked there remotely during his entire period of employment at Capital Rx.
A little more than a week after being sent the letter, Capital Rx mailed CVS its response, continuing to threaten to sue, saying Yarlagadda’s employment “gives rise to a claim for tortious interference,” the suit said.
CVS is asking for a declaratory judgment regarding the validity of the non-compete, as well as damages for tortious interference with contractual relations and unfair and deceptive trade practices.
Capital Rx declined to comment on ongoing litigation.
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