Delaware Court Upholds Restrictive Covenant in Physician Employment Agreement

In a recent Memorandum Opinion, Judge Herlihy of the Delaware Superior Court held that a restrictive covenant in a physician employment agreement that required the physician-employee to pay the medical practice employer $200,000 in liquidated damages if, during the 2-year period following termination of the agreement, the physician-employee practiced medicine or treated former patients of the employer within a 20-mile radius of the medical practice’s locations, is enforceable as a matter of law.

The medical practice, located in Sussex County, Delaware, employed the physician as an internist and pulmonologist, and it was undisputed that when he left the practice he breached the terms of the restrictive covenant by seeing former patients of the practice within a 20-mile radius of the practice’s offices. The Court held that the restrictive covenant complied with 6 Del. C. §2707, and that liquidated damages in the amount of $200,000 was a reasonable estimate of the damages caused by the physician’s breach of the restriction.

Whether the physician will actually be required to pay the practice liquidated damages, however, depends on whether the practice breached the employment agreement before the physician breached the restrictive covenant. The Court held that fact issues related to the employer’s alleged breach precluded summary judgment.