Employers ask employees to sign non-compete agreements at the start of employment. Most non-compete agreements require the employee not to work for a competing business. The employee also agrees not to begin a new company with the same products or to develop competitive products. If they leave to work for another agency, they will not recruit former employees.
If an employee breaks a non-compete agreement, the employer has legal rights to enforce the contract. Talking to commercial litigation lawyers in Sydney is the first step to beginning legal action.
Employers can seek injunctive relief after proving the former employee has broken the agreement. When enforced, the former employee must leave their new place of employment and stop competing. Courts usually do not award damages to the plaintiff, but they force the defendant to stop violating the agreement.
Employers can receive monetary damages, but they must prove they lost money by the former employee’s actions. The amount of loss does not matter. The employer must prove that a loss occurred. The most common award involves a loss of profits due to breaking the contract.
Courts also award damages for malicious conduct, showing that the employee intentionally broke the contract to harm the company. Judges award punitive damages in this case.
Broken non-compete agreements can also include liquidated damages, which is the amount the defendant pays for breaching the agreement. Employers should include this amount in the text of the non-compete agreement. If an employee breaks the agreement, the employee pays it, not the new employer. Courts can award more or less than the amount stated in the non-compete agreement.
Courts can put another financial obligation on the losing party: court costs. If the arguments were frivolous, the judge can force the losing side to pay attorney fees and court costs.
Non-compete agreements are difficult to enforce, so most cases do not succeed. Before awarding damages, courts run the agreement and the employee’s actions through a test to determine if the behavior was malicious. The ones that do have narrow rules that require employees to not contact their former employer’s clients.
Most winning cases show that the former employees broke that part of the agreement and acted maliciously toward their former employer. General non-compete agreements usually do not win cases, as the rules are too vague to prove sufficiently.
Plaintiffs lose for common flaws in their non-compete agreements:
- Unreasonable restrictions
- Unrealistic business objectives
- Ambiguous covenants
- Lake of adequate consideration
When writing enforceable non-compete agreements, employers should consider what they need to protect, for how long, and why. Non-compete clauses can restrict an employee’s ability to earn an income, which is why courts can be reluctant to enforce contracts with broad language.
An enforceable non-compete agreement should clearly state what activities the employee cannot do within a reasonable time. The agreement should also have an appropriate geographic area where the employee cannot engage in competing work. Finally, the clause needs to clearly define the interests the employee is protecting.
