Breach of Non-Compete Agreements
Many types of business disputes focus on the duty that partners and members have to act in the best interests of the business – and what happens when a partner or member violates that trust. Other types of business disputes focus on breaches of contracts and what happens when a contract is breached.
While a breach of a non-compete agreement can be understood as a form of breach of contract, it can also fall into a third category: business disputes involving current or former employees of a business. An employee who breaches a non-compete agreement can do serious damage to your company’s health and competitiveness in the marketplace.
If you suspect that a former employee is breaching a non-compete agreement made with your company, don’t hesitate to contact The Armstrong Law Firm, P.C. to speak to business dispute attorneys who will be Strong for You.
About Non-Compete Agreements
A non-compete agreement is a contract between an employer and a current or former employee. In it, the employee agrees not to compete with the employer’s business.
Most non-compete agreements specify terms in three areas:
- How long will the employee refrain from competing with the employer’s business?
- How big is the geographic area in which the employee will refrain from competing with the employer’s business? This may be as small as a city’s limits or as large as a continent.
- What is the employee specifically prohibiting from doing – in other words, what “counts” as competing?
The ways in which a non-compete agreement may be breached depend on the specific terms of the agreement. However, breaches of a non-compete agreement typically focus on the “purpose” section of the agreement. In other words, they involve the employee doing the prohibited competitive actions either during the time period specified by the agreement or within the geographic area specified by the agreement.
Enforcement of a Non-Compete Agreement
Many employees sign non-compete agreements in the belief that their agreement can never be enforced. Some employers are also skeptical about whether the agreement can be enforced, whether or not they actually use one.
In fact, courts will enforce non-compete agreements as long as the agreement meets the requirements of a valid contract and it is not unconscionable, or excessively burdensome to the person against whom it is being enforced. Courts that examine non-compete agreements to determine if they can be enforced typically look at three factors:
- Is there consideration? A contract exists only if there is consideration, meaning that both parties get something for their participation in the contract. In other words, a non-compete agreement is enforceable if the employee got something in exchange for giving up the right to compete with the employer. Money, a job, or another item of value can all operate as consideration.
- Does the employer have a legitimate business interest in preventing the employee from competing with the business? Generally speaking, if the employer can show that its business would be harmed if the employee competed with it, the business can establish a legitimate business interest. This is particularly true if the employee had access to trade secrets or other proprietary information while he or she worked with the company.
- How broad is the restriction on the employee’s right to compete? The time, place, and purpose restrictions on the right to compete must be reasonable, given the employer’s scope of work. For instance, a small local business may be able to show that not allowing an employee to start the same type of business for three years in the same city is reasonable, but that same business may be unable to show that it is reasonable to prevent the employee from ever working in a similar type of business again anywhere in the country.
As a rule, courts are more likely to uphold a non-compete agreement when a business owner agrees not to compete, rather than when an employee agrees not to compete. This is because courts expect business owners to have the knowledge and experience to think more carefully through the terms of a non-compete agreement before they sign one. This does not mean, however, that a business owner cannot escape the terms of an unconscionable or excessively burdensome agreement. Your attorney can help.
Limiting the Damage from a Breach of Non-Compete Agreement
An employee who breaches a non-compete agreement can do serious damage to a business, especially if they do so by leaking trade secrets or by taking a prominent position with a competing business. The most common ways that businesses address a breach of a non-compete agreement include:
- Injunctive relief. When the damage caused by the employee’s breach is likely to be immediate, rapid, or ongoing, the first step is typically to seek an injunction. This court order temporarily prevents the employee from carrying out the competitive behavior while the court looks at the contract.
- Monetary damages. In some cases, an employer will also seek money damages from the employee who breached the non-compete agreement. Money damages are frequently appropriate in cases in which the employer can show that the breach caused an actual loss of profits. The size of the award in a successful case depends on which losses can be demonstrated to the court’s satisfaction.
- Liquidated damages. Like monetary damages, liquidated damages are a dollar amount that the employee pays to the business if the business receives a judgment in its favor. Unlike monetary damages, however, liquidated damages don’t require the company to demonstrate an actual loss of profits. Instead, these damages are typically written into the contract as a penalty for a breach of the contract. Like the rest of the non-compete agreement, the liquidated damages clause will be examined by the court to determine whether it is enforceable.
Talk to an Experienced Eastern North Carolina Business Attorney Today
A breach of a non-compete agreement can put your entire business in jeopardy. It can also feel like a significant betrayal of trust.
If you’re facing a situation in which an employee has breached or is threatening to breach a non-compete agreement, call the experienced attorneys at The Armstrong Law Firm, P.A. For over 30 years, we’ve used our experience and knowledge to stand strong for clients throughout eastern North Carolina. Call us today to learn how we can be Strong for You as well.