What Is the Penalty for a Breach of a Non-Compete Covenant?
Many companies use non-compete agreements, also referred to as a non-compete covenant, so their employees can’t leave and work for a competitor. Although a contract like this can be legally binding, some aren’t enforceable or even valid.
If you violate a valid non-compete covenant that is in place, your former employer could pursue legal action against you. This could involve an injunction, lawsuit, or monetary penalties.
You could face civil penalties and additional consequences for violating your non-compete agreement as well.
Legal Consequences of a Non-Compete Agreement Violation
Typically, an employer will file a lawsuit against an employee if that person violated an enforceable non-compete agreement. The employer can seek compensation for losses they suffered due to the violation.
Your employer might choose to file an injunction instead if they want to enforce the agreement. An injunction is a court order requiring an employee to honor their contract.
In some situations, an employer will choose to file an injunction and lawsuit simultaneously. In this situation, you could face civil penalties and be prohibited from breaking your non-compete agreement.
Filing a Lawsuit for Monetary Losses
Employers can pursue compensation for various monetary losses by filing a lawsuit against an employee who violates their non-compete agreement.
One of the most common forms of compensation is punitive damages. This punishes the defendant for malicious conduct. Your employer must provide clear and convincing evidence of your malicious actions for a jury to determine if you owe punitive damages.
Liquidated damages might also be available in a lawsuit. Typically, a specific part of a non-compete agreement allows an employer to pursue this type of compensation if their employee breaches the contract. If the agreement is valid and enforceable, you could owe the amount it specifies. However, the court can decide whether it’s a reasonable amount before enforcing the payment.
Filing a Lawsuit for Actual Losses
Aside from a financial award for liquidated damages and punitive damages, your employer could pursue compensation for actual losses suffered when you breached your non-compete covenant. In other words, you could be on the hook for any profits they lost due to your actions. However, your employer must show proof of lost profits directly related to your violation.
Filing an Injunction
Sometimes, an employer can’t prove they suffered losses. Instead, they will file an injunction against their employee. This allows the court to order you to uphold your part of the non-compete agreement. If the court rules in your previous employer’s favor, they could also require you to leave your new employer.
Elements of an Invalid or Unenforceable Non-Compete Agreement
Specific factors must exist for you to violate a non-compete agreement, giving your employer grounds to pursue legal action. There must be a valid contract your employer could enforce if you violate any of the terms.
Common reasons the court might determine your non-compete agreement isn’t valid or enforceable include:
- Lack of consideration – A valid agreement involves the employer providing their employee with something of value in exchange for the employee to uphold the contract. The court could invalidate the non-compete agreement if there is no consideration.
- Unreasonably long period – The amount of time the non-compete agreement applies to should be reasonable. Typically, two to three years is an appropriate period. If your contract includes a longer amount of time, the court might invalidate it.
- Geographically broad – A non-compete agreement is geographically broad if an employer operates in a small area but prevents you from working for another company anywhere else in the country. The contract should limit the geographical location, so you can’t work for a competitor in the same area as your previous employer.
If you violated your non-compete covenant and are facing legal action from your former employer, call Gastonia attorneys Mullen Holland & Cooper P.A. immediately.
We can review the agreement to determine if it’s valid and enforceable. We will create a legal strategy to protect your rights during the case and try to reach a favorable outcome.
With over 60 years of experience serving North and South Carolina, you can depend on our legal team at Mullen Holland & Cooper P.A. to fight by your side until the end. Contact us today for your initial consultation.