North Carolina Court of Appeals Rules Non-Compete and Liquidated Damages Provisions Unenforceable for Public Policy

InAesthetic Facial & Ocular Plastic Surgery Center, P.A. v. Zaldivar, the North Carolina Court of Appeals last month unanimously affirmed a lower court’s ruling that a former employer’s restrictive covenants against a highly specialized physician were unenforceable because they would harm public health by restricting patient access to a scarce medical resource in violation of public policy.

Dr. Renzo Zaldivar, the former employee, was an ophthalmologist with training in oculo-facial plastic and reconstructive surgery—a scarce subspecialty throughout the state. In 2008, Dr. Zaldivar joined Aesthetic Facial & Ocular Plastic Surgery Center, P.A., and his employment agreement included a covenant not to compete, a covenant not to solicit former patients or divert business, and a liquidated damages provision. The term of the restriction was two years. In 2011, Dr. Zaldivar resigned and immediately began his own practice in violation of the restrictive covenants. In late 2014, the former employer brought suit to enforce the liquidated damages provision, among other claims.

Interestingly, the former employer argued that the liquidated damages provision should be enforceable because the two-year restrictive period had already expired and it would not prevent Dr. Zaldivar from providing his scarce subspecialty services to the public. The Court of Appeals disagreed, holding that the both the restrictive covenants and the liquidated damages provision must be reasonable and not violate public policy. Because future physicians in similar circumstances may opt against continuing to practice out of fear of financial penalty, “[t]he practical effect on public health” of enforcing the liquidated damages provision would be the “same as enjoining the physician’s practice[.]”


If you need assistance with any issues involving your physician employment agreement, please contact Heather Skelton or Ethan Dunn.