Damages Recoverable in Non-Compete Action

The Basics | Employer’s Rights | Employee | Elements to Prove | Recoveries | Defenses | Trade Secrets | Procedures and Injunctions | Employment Issues | Settlement Options

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Damages Recoverable.
There are a range of remedies that may be sought for  the violation of a non-competition clause, so long as  the contract allows for these particular remedies,  such as injunctive relief (an order preventing the  employee from competing or sharing trade secrets),  attorney fees, court costs and expenses (hiring an  investigator to confirm competition), and/or liquidated  damages (an amount set forth in the contract).

Elements of an Injunction.
The employer seeking to enjoin a former employee  from competing pursuant to a contract must prove  four elements:
1. the likelihood that the employer will prevail on the  merits based on the contract;
2. that greater injury would result from not enforcing  the agreement than from enforcing the agreed terms;
3. that the employer will suffer irreparable harm if the injunction is not granted. The employee can show irreparable harm by demonstrating the unavailability
or inadequacy of money damages. Ticor Title  Insurance Co. v.Cohen, 173 F.3d 63 (2d Cir.,  1999);aven, Inc., 225 Ga.App. 533, 484 S.E.2d 259  (Ga.App., 1997).

Jurisdictions are not uniform when it comes to  deciding when an injunction should start. Some find  that it should run from the date of the court’s order.  National Interstate Insurance Company v. Perro, 934  F.Supp. 883 (N.D.Ohio, 1996). Others start it from  the date of the termination of employment. American  Express Fin. Advisors, Inc. v. Scott, 955 F.Supp. 688  (N.D.Tex., 1996); Buckley v. Seymour, 679 So.2d 220  (Ala., 1996).

The courts may — and often do — “blue pencil” an  non-compete agreement to make it more reasonable  or limited in time or geographic scope.

Liquidated Damages.
In order to avoid litigation to restrain an employee’s  conduct, some agreements provide for liquidated  damages in the event of a breach of a non-compete  provision. Certain jurisdictions will enforce liquidated  damage provisions provided that they are not in the  nature of a penalty. BDO Seidman v. Hirshberg, 93  N.Y.2d 382, 690 N.Y.S.2d 854, 712 N.E.2d 1220  (N.Y., 1999); Weber v. Tillman, 259 Kan.457, 913  P.2d 84 (Kan., 1996). Others will referan from  enforcing such agreement. Wojtowicz v. Greeley  Anesthesia Services, P.C., 961 P.2d 520  (Colo.App., 1997) (unenforceable as a penalty).

In some jurisdictions the existence of a liquidated  damage clause will preclude injunctive relief because,  after all, injunctive relief is only warranted where no  adequate remedy at law exists. Blankenau v. Kern,  1999 WL 759977 (Neb.App., 1999); Ed Bretholet &  Associates Inc. v. Stefanko, 690 N.E.2d 361  (Ind.App., 1998); Emergicare Systems Corp. v.  Bourdon, 942 S.W.2d 201 (Tex.App.-Eastland,  1997); Bradley v. Health Coalition Inc., 687 So.2d  329, 332 n.4 (Fla.App. 3 Dist., 1997).

In still other jurisdictions a liquidated damage clause  will not prevent the order of injunctive relief. BDO  Seidman v. Hirshberg, 93 N.Y.2d 382, 690 N.Y.S.2d  854, 712 N.E.2d 1220 (N.Y., 1999).

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Areas of Law: 

Breach of Contract
Oral and Written Agreements
Arbitration/Mediation
Construction Law
Non-Competes

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