Delaware Superior Court Enforces Noncompetition Covenant Against Physician Placed on “Garden Leave” Following Notice of voluntary Termination of Employment

Posted In Non-compete

The Delaware Superior Court has rejected the effort of a physician, bound by a noncompetition covenant with his former practice group, to argue that the covenant was unenforceable because the practice placed him on “garden leave” during the final four-and-a-half months of the contract’s mandatory six-month notice period.  During a typical garden leave, the departing physician would get paid, but he or she could not practice. 

The Court ruled that the physician’s effort to repudiate his noncompetition obligations by bringing suit against his former practice constituted an anticipatory breach of the physician’s obligation to pay liquidated damages as a result of going into prohibited competition with the practice following his departure.  This case sets a new Delaware precedent, as no Delaware court has formerly decided garden leave could be used when the covenant did not authorize it expressly, but rather gave the practice broad enforcement authority. 

This decision has important implications for physicians and medical practices in Delaware and beyond.  The Morris James LLP Healthcare and Employment teams suggest the following procedures so that parties to covenants not to compete have properly accounted for this decision:

  • For medical practices bringing on new physicians, seek attorney review of existing non-compete forms and practice governance documents to make sure that the practice has the ability to utilize garden leave if advisable when a physician gives notice of a departure.
  • Physicians seeking to join a practice should have any proposed non-compete reviewed by legal counsel, and be advised how the practice’s future ability to use ‘garden leave’ might impact the physician’s future ability to leave and remain consistently in practice. The document might not mention garden leave, but after this decision, the former employer may reliably be able to use it to enforce a covenant not to compete. 
  • Likewise, consider liquidated damages provisions in existing agreements, and make sure they line up with the particular practice’s business and payment models. In the contract the Court interpreted, the liquidated damages keyed off of the number of the former practice’s patients actually seen by the departing physician, with no requirement to prove that the physician actively solicited those patients, greatly narrowing the scope of further litigation necessary to arrive at a liquidated damages amount.

In addition to resolving a matter of first impression in Delaware, the decision is notable beyond the First State for its affirmation of the use of garden leave by an employer even in the absence of an explicit contractual provision authorizing the employer to utilize it.  As the number of states enacting restrictions upon the use and enforcement of traditional noncompetition covenants rises, garden leave poses a potentially attractive alternative to the traditional covenant barring employment for a specified period within a specified area or market.

The case is Saez v. Nephrology Associates, P.A., Civil Action No. N19C-02-042 RCC, Superior Court of Delaware. The Morris James LLP Legislative and Regulatory team will be watching for any state legislative action in response to this case as the new session commences in January. 

Kimberly Hoffman, Esq., Chairs the firm’s Legislative and Regulatory Practice, which includes Healthcare Law.  She is the only Delaware attorney ever recognized as a Top Lawyer by Delaware Today in the areas of both Zoning and Healthcare law. Chambers USA - America’s Leading Lawyers for Business has recognized Kimberly as a notable practitioner every year since 2007.