Both parties to an employment agreement have interests that deserve protection. Clauses requiring liquidated damages in the event of an early departure are frequently utilized by employers in competitive fields. In the case of medical professionals, it might be difficult to find an immediate replacement if the employee leaves the practice before the end of the term specified in their contract. However, there are situations where the amount demanded of the employee does not seem to bear any relation to the loss incurred.
Shenara Sexton, a doctor and former employee of Forefront Dermatology in Atlanta, has filed a lawsuit challenging the enforceability of a liquidated damages clause within her employment agreement. The case raises issues regarding these clauses and whether their terms are overly harsh in an attempt to prevent employees from capitalizing on other opportunities.
In her lawsuit, Sexton alleges that the liquidated damages clause in her employment agreement constitutes an unfair penalty. The predetermined amount of damages was $2,500 for each day between the end of her employment and the completion of the three-year contract term. Dr. Sexton argues that this amount far exceeds any actual harm that Forefront could suffer as a result of her alleged breach.
When Dr. Sexton’s husband got a job in another state, she informed her supervisors that she wanted to leave the practice approximately one year before the end of her contract. Forefront refused her request to break the contract early and said she would be forced to make the $2,500/day payment if she left her position in Atlanta, despite her offer to work in a Forefront office in Illinois, where her family was moving. Dr. Sexton also offered to fly from Chicago to Atlanta on the days when she was required to work if Forefront would pay for the flights. Though the airfare costs would be much less than the daily liquidated damages rate, Forefront also denied this request.
Courts generally uphold liquidated damages clauses if they are deemed to be a reasonable forecast of the actual damages that would result from a breach. However, clauses that are viewed as punitive or excessively disproportionate to the actual harm suffered may be deemed invalid. Factors considered by courts include the sophistication of the parties, the nature of the contract, and the difficulty of calculating actual damages.
The case highlights the fact that employment contracts, including liquidated damages clauses, should be carefully crafted so that they are reasonable, proportionate, and reflective of actual potential harm. Should you be a party to an employment agreement where the liquidated damages provision seems more like an excessive penalty than an honest effort to make the employer whole, you should speak with The Reddy Law Firm, P.C. Our Alpharetta firm handles a full range of legal matters relating to employment contracts. Please call 678-629-3246 or contact us online for a consultation.
