Thomson Reuters Practical Law recently featured a Trade Secrets & Employee Mobility blog post, titled, “Mile High Non-Compete Law: Colorado Court of Appeals Determines Enforceability of Liquidated Damages Clause in Physician Non-Compete Agreement,” co-authored by David J. Clark, Member of the Firm, Erica McKinney, Associate, in the Employment, Labor & Workforce Management practices, in the firm’s New York and Chicago offices.
Following is an excerpt:
The Colorado Court of Appeals, in Crocker v. Greater Colorado Anesthesia, P.C., recently examined several unique enforceability considerations with respect to a physician non-compete agreement. Of particular interest was the Court’s treatment of a liquidated damages provision in the agreement. Pursuant to a Colorado statute (8-2-113(3), C.R.S. 2017), the Court held that the provision was unenforceable because the liquidated damages were not reasonably related to the injury actually suffered.
Michael Crocker, a former physician-shareholder at Greater Colorado Anesthesia (Old GCA), signed an employment agreement with Old GCA that contained a non-compete provision that prohibited Crocker from practicing anesthesiology within 15 miles of a hospital serviced by Old GCA, for two years following termination of the agreement. The employment agreement also included a liquidated damages clause that required a former employee who violated the non-compete agreement to pay “(1) the three-year annual average of the gross revenues produced by the doctor’s practice; (2) minus the three-year annual average of the direct cost of [Old GCA] employee; (3) multiplied by two, to reflect two years of competition; and (4) plus $30,000 to cover the estimated internal and external administrative costs to terminate and replace the competing doctor.”