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
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.
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).