Breach of a non-compete agreement in employment contract

A non-compete agreement (hereinafter “non-compete”), also known as a covenant-not-to-compete, is a type of contract used to restrict an employee’s ability to work for one of their employer’s competitors after leaving their employment. They apply to competitors doing business within a specific geographical region and are effective for a specific period of time.

Unlike most contracts, a non-compete must be in writing.  In addition, it must be signed by the employee; however, the employer is not required to sign.  For the following reasons, non-competes are usually agreed to at the time an employee accepts employment and may be unenforceable if entered into after the employee has accepted employment.  To be enforceable, a non-compete, as with all other contracts, must be supported by “adequate consideration.”  Adequate consideration means both parties are getting something in return for something else. When an employee agrees to a non-compete at the time he accepts employment he does so in exchange for the job itself.  If a non-compete is entered into at some time thereafter, it is not supported by consideration unless the employee receives something in addition to the original terms of employment; there must be a change, for example, in compensation, duties, or the nature of the employment.  Forcing an employee to sign a non-compete under the threat of being fired does not constitute adequate consideration.

In addition to adequate consideration, a non-compete must be reasonable, both as to time and territory, fair to the parties, and not against public policy.  The burden is on the employer to establish the reasonableness of the non-compete.  Non-competes in employment contracts are scrutinized more vigorously than are Non-Competes Incident To The Sale Of A Business.

If a former employee breaches a non-compete, the employer may be entitled to three forms of relief.  First, the employer may be entitled to have a court order the former employee to stop working for the competitor. Second, the employer is entitled to be placed, insofar as can be done by money, in the same position they would have occupied had there been no breach.  The employer may be entitled to recover the profits, if any, which they lost as a result of the breach if such losses were reasonably foreseeable at the time the non-compete was made.  Damages are reasonably foreseeable if they are ones that arise naturally or according to the usual course of things from the breach of the non-compete or may fairly be supposed to have been within the contemplation of the parties at the time they entered into the non-compete as the probable result of a breach thereof.  An employer may also be entitled to recover the profits, if any, which the employee obtained as a result of the breach.  Third, where the former employee was wrongfully induced by a competitor to violate the non-compete, the employer may sue the competitor for Wrongful or Tortitious Interference with Contract.