Damages for Breach of a Non-Compete in Virginia
When an employee breaches an valid non-compete contract, the employer is entitled to damages and other relief.
Employers have several options: preliminary injunction, permanent injunction, lost profits, liquidated damages, and attorneys’ fees.
Here is a summary of the damages that an employer is allowed to recover under Virginia law in non-compete cases.
Preliminary Injunction
What is a preliminary injunction?
A preliminary injunction is a court order that temporarily restrains the employee from violating the contract, e.g. soliciting customers or competing, while a lawsuit is pending.
When can a party get a preliminary injunction?
The time to ask for a preliminary injunction is shortly after the lawsuit is filed. The employer can schedule a hearing to ask the court to enter an order to enforce the contract prior to trial.
What must an employer prove to get a preliminary injunction?
The employer must prove a likelihood of success on the merits and imminent harm if the injunction is not granted in order to obtain a court order.
Permanent Injunction
What is a permanent injunction?
A permanent injunction is a court order that permanently restrains the employee from engaging in the activities prohibited by the non-compete contract.
When can an employer get a permanent injunction?
Unlike a temporary injunction, which is granted at the beginning of a lawsuit, a permanent injunction is granted at the conclusion of the lawsuit as part of the court’s final judgment.
Lost Profits
What are lost profit damages?
An award of lost profits is allowed if the employee’s breach of the non-compete contract causes the employer to lose future revenue which, absent the employee’s conduct, the employer was reasonably certain to get. Preferred Systems Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382 (2012). The employer is entitled to the benefit of the bargain, i.e. to “put[] [the employer] in the same position, as far as money can do it, as he would have been if the contract had been performed.” Appalachian Power Co. v. John Stewart Walker, Inc., 214 Va. 535 (1974).
What must an employer prove to get lost profits in Virginia?
An employer must prove with reasonable certainty the amount of profits it would have earned but for the employee’s conduct.
For example, an employer can present evidence in the form of receipts, invoices, and testimony to show that (a) it had a past history of billing for work to a customer, (b) it was likely to continue billing for the work; and, (c) after the employee began competing, the employer stopped receiving revenue for the work at the same time that the competitor billed for similar work.
Liquidated Damages
What are liquidated damages?
An award of liquidated damages is allowed if the parties agree in advance on the amount of money to be paid as compensation for loss or injury which may result from the breach of the non-compete contract.
What is an example of a liquidated damages clause?
A non-compete contract might state, “In the event employee breaches the non-compete contract, the employer shall be entitled to an award of $15,000 per month for every month that the employee breaches the contract.”
Are liquidated damages clauses enforced in Virginia?
Not always. Liquidated damages clauses are enforced only if “the actual damages contemplated at the time of the agreement are uncertain and difficult to determine with exactness and when the amount fixed is not out of all proportion to the probable loss.” Dahlgren Ltd. Partnership v. Bd. of Supervisors of King George County, 240 Va. 200, 202-03 (1990).
A liquidated damages clause will not be unenforced under Virginia law if “the damage resulting from the breach of contract is susceptible of definite measurement, or where the stipulated amount would be grossly in excess of actual damages.” Brooks v. Bankson, 248 Va. 197, 208 (1994).
Who has the burden of proof of invalidating the clause?
The burden of proof is on the employee to show that the liquidated damages clause is unenforceable, since the employee had initially agreed to the liquidated damages clause when they signed the contract and the purpose of the liquidated damages clause is to obviate the need for the employer to prove actual damages. O’Brian v. Langley, 256 Va. 547, 551-52 (1998). Therefore, even if there is a liquidated damages clause in order, the employee is allowed to compel discovery on the damages suffered by the employer in order to determine the validity of the liquidated damages clause. Id. at 552.
Will liquidated damages clauses be enforced when the employer has suffered lost profits?
Probably not. In non-compete disputes, Virginia trial courts generally do not enforce liquidated damages clauses because often the employer has suffered actual damages due to lost profits that render liquidated damages invalid and unnecessary. See, e.g., Pace v. Ret. Plan Admin Serv., 74 Va. Cir. 201 (Richmond Cir. Ct. 2007) (holding that a liquidated damages clause is contrary to public policy and unenforceable in a non-compete dispute).
Attorneys’ Fees and Costs
What are attorneys’ fees and costs?
An award of attorneys’ fees and costs is allowed when the parties have agreed to pay the fees and costs associated with enforcing the contract to the prevailing party. Sometimes, the fees provision is one-sided, whereby only the employer can recover its fees and costs from the employee if the employer successfully enforces the non-compete. Other times, the fees provision is mutual or reciprocal, where by the prevailing party can recover its fees and costs from the losing side.
Summary: An experienced non-compete lawyer can help employers and employees understand the likely financial consequences of breaching a non-compete contract under Virginia law. The best approach is to clearly state the damages in the initial contract, rather than wait for a dispute to arise. That way, all parties understand the consequences and can plan accordingly. But if a dispute has already arisen, the lawyer can evaluate the costs and risks of litigation.
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