Delaware Business Litigation Report

Chancery Addresses the Implied Covenant in an At-Will Employment Relationship and Delaware’s Statutory Restriction on Physicians’ Non-Competes

Dunn v. Fastmed Urgent Care, C. A. No. 2018-0934 MTZ (Del. Ch. Aug. 30, 2019).

This case arises out of a physician’s sale of his limited liability company interest, and his subsequent attempts to enforce oral promises outside of – and sometimes in conflict with – written agreements governed by Delaware law.  In granting the defendants’ motions to dismiss for failure to satisfy pleading standards, the Court addressed two potentially noteworthy issues. 

First, in holding that the doctor failed to state a claim for breach of the implied covenant of good faith and fair dealing, the Court addressed the relatively narrow circumstances under Delaware law in which the implied covenant may be invoked in an at-will employment relationship.  Surveying precedent, the Court reasoned that bad faith in this context may exist where an employer induces entry into an employment relationship through intentionally misleading the employee about the anticipated duration of employment. 

Second, the Court rejected the doctor’s argument that a restrictive covenant violated 6 Del. C. § 2707, which deems “void” certain agreements that “restrict[] the right of a physician to practice medicine in a particular locale and/or for a defined period of time …”  Although the Arizona-based parties’ contracts chose Delaware law, the Court reasoned this provision was not intended to apply outside of Delaware.  Moreover, the Court reasoned, this prohibition applied only to restrictions on providing medical services, and so would not void a contractual prohibition on accepting an executive position at a competing medical services business, which is what the agreements at issue intended.       

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