What Takes Place When a Non-Compete Agreement Is Broken? (FTC Ruling Update)

  1. Non-Compete Agreements
  2. What Takes Place When a Non-Compete Agreement Is Broken? (FTC Ruling Update)
non compete FTC rule

The FTC has ruled that noncompetes are unenforceable, but it’s important to remember that this rule is not law. Future presidential administrations could choose to reverse this rule and there are already court challenges brewing. If you’re someone in a situation where you could be in violation of a non-compete agreement, it’s important to understand what could or could not happen next. 

Non-compete agreements, which forbid workers from going into competition with their previous company after their employment is ended, had been widely used by businesses in the modern corporate climate. Despite being frequent, many non-competes are invalid or unenforceable because they lay obligations on the former employee. If non-compete clauses are determined to be legitimate and enforceable, pending the outcome of existing legal challenges to the FTC rule against noncompetes,  you as the ex-employee may face a variety of legal issues. This might include anything from a straightforward injunction to steep financial penalties. So, what happens then if you break a non-compete clause or think you could be breaking one in case the FTC rule changes back to the traditional rule?

The Penalties for Breaking a Non-Compete Agreement

A legitimate and enforceable non-compete agreement means that your company will probably sue you if you break it. This lawsuit may be filed to enforce the non-compete agreement by obtaining an injunction, which is a court order directing you to abide by the terms of the agreement, or it may be filed to seek both monetary damages and actual losses incurred by your employer. In extremely unusual circumstances, the court can order you to work for a rival company for the period of time laid forth in the non-compete agreement.

A Money Damages Lawsuit

Employers may be entitled to monetary damages in a variety of different ways. Punitive damages for malicious conduct is an often used kind of compensation. With this form, the employer must provide substantial proof of malevolent behavior. Punitive damages may apply to you if they are successful in doing so.

Liquidated damages are another typical kind. In the event that an employee violates the non-compete, the non-compete agreement usually specifies liquidated damages. You, as the ex-employee, may be compelled to pay monetary damages in the amount stipulated in the non-compete agreement if it is found to be legitimate and enforceable. Before forcing you to pay, the courts can, however, determine whether the sum is reasonable.

A Lawsuit for the Real Losses Your Employer Caused

Employers may pursue damages for real losses, or lost earnings as a result of violating the non-compete agreement, in addition to damages for malicious behavior or liquidated damages. This places the onus of proving that the non-compete was violated and caused actual losses on the employer; yet, should they succeed in doing so, you may be looking at severe financial consequences.

Bringing a Lawsuit to Get an Order Against You

While employers do file lawsuits seeking damages, the most typical case filed following a non-compete violation that is approved is one seeking an injunction. These are increasingly prevalent because employers frequently are unable to establish damages or choose not to attempt to do so. Rather, they request that the non-compete clause be upheld by the court and that the employee quit their new job.

How can I tell whether I broke a non-compete agreement?

Your signature on a non-compete must be deemed to be legally binding and legitimate in order for you to have broken it. Non-compete clauses may be challenged for a number of grounds, most commonly that they unduly burden the employee. Courts frequently find non-compete agreements for the following reasons:

Absence of Consideration: In order for a non-compete agreement to be enforceable, your employer must have provided you with a valuable benefit in exchange for your consent to refrain from competing. The courts may declare your agreement void if consideration is absent.

Too Long: A non-compete clause ought to be fair and shouldn’t keep you from looking for work for a long time. Two to three-year agreements are common and appropriate. But, a court may declare an agreement longer than that to be illegal.

Too Geographically wide: If your employer only works in a local area, he cannot prevent you from looking for work anywhere in the United States. This means that the agreement cannot be overly wide. To keep you from competing in the same geographic area as your employer, the agreement’s scope must be geographically restricted.

It can be challenging to understand non-compete agreements and to determine if an agreement is enforceable in the first place. If you believe you may be in breach of a non-compete agreement, it is strongly urged that you obtain expert legal assistance as the penalties for doing so might be quite severe.

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