What are the Consequences of breaching Non-Competes?

This week, we are concluding our Non-Competes mini-series with the consequences of breaching non-competes. You can find our previous posts here: Are Non-Competes Enforceable, When have Non-Competes been struck down, and When have Non-Competes been upheld. While we are certainly on the train of making Non-Competes a thing of the past, the unfortunate reality is they still exist, and can be enforced, so let’s dig into what the consequences have been.

The Major Types of Relief

Like any type of ‘Breach of Contract’, breaching your non-compete results in your responsibility to provide ‘Relief’ to make things right again for your previous employer. Here are the common ways you’re expected to fix things:

1. Injunctive Relief: You’ll be asked to stop whatever non-competitive action that’s occurring, from not doing business the geographical area of your non-compete to being asked to leave the new employer that’s deemed competitive.

2. Liquidated Damages: If you’ve signed a non-compete that states the sum of money you owe if breached, then you’ll be asked to pay this value (e.g. the $350,000 asked of the neurosurgeon in Blaskiewicz v. Spine Institute of Idaho).

3. Monetary Damages: Your previous employer may argue that you’re responsible for paying their loss of profit. The burden of proof is on the employer and they’d have to provide ample evidence of loss that can be attributed to you.

4. Punitive Damages: Beyond profit loss, your previous employer can also claim damages if they can prove your actions were out of malice. They’d have to show that your goal was not just to compete, but to go out of your way to mess with their business.
   
   

Examples in Court

Let’s put those types to practice and see what kinds of rewards employers have actually been granted when non-competes have been upheld. Petter Packaging, LLC v. Hutchcraft (2018) ruled in favor of the employer when its former company president and his wife was found to be running a competitive side hustle. As he was using company resources to build his separate, competitive business, the couple was ordered to pay $2.3M in monetary damages and $2.25M in punitive damages. For an example that didn’t result in a monetary fine, Update Inc. v. Samilow (2018) resulted in an injunction, putting a halt to competitive activities.

It’s worth noting that the majority of other court cases were reliefs were granted were from well before 2000 with damages ranting from thousands to tens of thousands of dollars. The tide over the last decade has pushed most non-competes to being ruled unenforceable. And even when they haven’t, the burden of proof on companies often hasn’t been worth the legal fees to seek reliefs beyond injunction.

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It’s incredible to witness the turning point we might be as a country to the fate of non-competes. 30 states and counting have statues limiting their use, while states like California and Colorado have almost a complete ban. If we zoom out to the global level, the majority of European countries such as France, Germany, and Italy require post-employment non-competes to be paid (i.e. ‘garden leave’, which is more commonly seen on in Wall Street jobs for the US). It certainly puts non-competes into perspective if the individual can get paid for it!

For advocacy and beyond,
The Ask Ginkgo Team