However, the actual purpose is not to “punish” a breaching party but rather to establish, up front, the amount needed to reasonably compensate the non-breaching party for losses which it will likely incur as a result of the breach.In determining the enforceability of a Liquidated Damage provision in North Carolina, the Court will apply the following questions: 1) “Whether the damages which the parties reasonably anticipate are difficult to ascertain because of their indefiniteness or uncertainty” AND 2) “Where the amount stipulated is either a reasonable estimate of the damages which would probably be caused by a breach or is reasonably proportionate to the damages which have actually been caused by the breach”.Courts generally will only uphold a liquidated damages clause if it is a reasonable estimate of the probable damages the employer will suffer, or if it is reasonably proportionate to the actual damages caused by the breach. If these standards are not met, the court will strike down the damages clause as an unenforceable penalty. If your medical practice has an employment agreement that includes a noncompete clause, you may be interested in a recent opinion delivered by the North Carolina Supreme Court.
In this case, the court determined that the “Cost Share” liquidated damages clause was not a noncompete provision, even though it applied only if the physician practiced medicine in the restricted territory in the one year following termination.
In theory, LDs provide a means for the parties to a construction contract to avoid expensive litigation in determining the amount of financial damage suffered by the non-breaching party as a result of the delay caused by the breaching party.
However, LD clauses are often misapplied, misallocated, or miscalculated, resulting in additional disputes and costs to the parties.
In a construction setting, this is most commonly seen in the context of delays on a construction project.
Said differently, the parties to the construction contract agree to a certain sum, generally calculated on a daily basis, that a breaching party will pay to the non-breaching party in the event of delay to the project.