Are you going to get sued for a breach of your non-compete? Maybe, depends on what you do. Below is a thumbnail sketch of
In most instances, a good rule of thumb is to “follow the money.” If an employee moves from Company A to Company B and, as a result, Company A continues to chug along as normal, a lawsuit is very unlikely. On the other hand, if, as a result of the employee’s move to a competitor, Company A loses money, a lawsuit is more likely. This is why, for the most part, where we see lawsuits over non-competes, these happen when an employee leaves and takes a big book of business out the door.
Non-compete lawsuits tend to “follow the money” because every civil lawsuit has two phases: liability and damages. Liability is legal responsibility for one’s actions and/or omissions. In the context of non-competes, an employee is “liable” for breach of a non-compete if he/she violate the terms of the non-compete (i.e. works for a competitor during the prohibited timeframe, geographic area, etc.). If a plaintiff can establish liability, the next phase is damages. Basically, damages are the amount of harm plaintiff suffered as a result of defendant’s actions. Thus, if as Company A continues to chug along after an employee moves to Company B (even if Company B is a direct competitor), Company A has suffered no damages and would not likely recover much by way of a lawsuit (while expending money and resources on a lawsuit). From Company A’s perspective, a lawsuit against a departing employee, even if he/she breached their agreement, is a losing perspective.
Nevertheless, this does not guarantee that an employer will never seek legal action against a departing employee for breach of a non-compete. Where employers do pursue this course of action, it typically proceeds as follows: (1) cease and desist letter, (2) application to the court seeking an injunction, and (3) a lawsuit seeking damages and other relief. Let’s discuss each step in turn.
- The Cease and Desist Letter. This is not a legal action. It is a threat letter from a lawyer. The threat is that if you do not “cease and desist” (in layman’s terms – “stop”) doing something – like working for a competitor – your former employer will sue you. Most of the time, the matter ends there. Often the parties can work things out short of legal action. And, very frequently, your former employer is just bluffing.
- The Application for an Injunction. Unlike a cease and desist letter, if your former employer is seeking an injunction, this is in a court of law. An injunction is a court order requiring you to do (or not do) something – like work for a competitor. Injunctions are very difficult for employers to obtain. This is because, in order to convince a court to order an injunction, the employer has to show that, if the court does not issue an injunction, the employer will suffer “irreparable harm.” This is a high burden, especially in light of the fact that monetary damages alone do not prove irreparable harm. Because of this, employers rarely seek injunctions. And, in the rare instances where they do, after the court issues or denies the injunction, most employers stop and do not pursue a legal action for damages.
- Lawsuit for Damages. This is an ordinary lawsuit. The employer will assert that by virtue of your breach of the non-compete agreement, it suffered damages. It is the employer’s burden to prove (a) that you breached the agreement and (b) that it suffered damages as a result. If it does, it recovers those damages.