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South Carolina Court of Appeals Upholds Physician Non-Compete and Forfeiture Provisions

    Client Alerts
  • February 15, 2013

Non-competition agreements among physicians are among the most frequently litigated employment restrictive covenants. In some situations, medical groups concerned about the enforceability of such agreements opt for forfeiture provisions that allow the departing physician to work for a competitor, but impose financial consequences for such decisions. Last month, the South Carolina Court of Appeals upheld a physician non-compete that contained both elements.

Baugh v. Columbia Heart Clinic P.A. involved a counterclaim against two departed cardiologists who opened a new practice within the territorial restriction contained in the agreement. The trial court held that the restrictive covenants were invalid on multiple grounds. The non-compete was overreaching because it prohibited the physicians from assisting others in the practice of cardiology in addition to directly working in the territory. The forfeiture provision and a liquidated damages measure of damages for violation of the non-compete were considered unreasonable penalty provisions.

The Court of Appeals reversed the trial court's decision on all grounds, upholding the non-compete. The court concluded that the assisting language was reasonable because without it, the departing physicians could help another practice take patients and business from their prior employer. The forfeiture and liquidated damages provisions were upheld on the basis that the practice had recently invested in a new office that suffered financially as a result of the competitive actions of the departed physicians.

The outcomes of these cases are always based on the specific facts involved. However, this decision gives South Carolina employers some degree of confidence that standard non-compete language and forfeiture or liquidated damages provisions will be upheld absent evidence that they are manifestly unreasonable. Any employer contemplating use of a non-compete should carefully draft the restrictions to address the specific and demonstrable competitive threats posed by that employee's departure.