Covenants II

In the prior page, Covenants not to Compete, we discussed when covenants not to compete will be enforced. In this section, we discuss how they are enforced. Often a covenant not to compete will contain specific provisions regarding how it may be enforced. Commonly, the contract will specifically provide that the covenant provisions may be enforced by injunctive relief. An injunction is an order of the court preventing the defendant from doing something. Injunctions are not ordinarily an appropriate remedy to enforce a contract: usually a party must accept damages instead. For example, if your contractor refuses to finish your house on time, you cannot obtain a court order enjoining or ordering timely completion, even if the contract makes time of the essence. The usual remedy for breach of contract is damages. Covenants not to compete represent an exception to this general rule. Courts say that damages may be difficult to determine in these circumstances, and that injunctive relief is needed to prevent occurrence of otherwise irreparable harm. And so, when an employee breaches a covenant not to compete, the employer often considers bringing an action for temporary and permanent injunctive relief.

The Temporary Injunction. A court case often takes a year or more to decide. If the employer had to wait until the end of the case to obtain an injunction, the employee could get away with violating the covenant for a considerable length of time. If the employee later loses the case, the employee will typically lack the resources to pay the damages which result. For this reason, employers often ask the court to grant a temporary injunction, to stop the employee from competing until the case is finally decided. The employer files papers with the court displaying a copy of the contract, affidavits in support of the motion describing the threatened conduct and supporting the claim that irreparable harm will result. The employee must respond with similar papers in defense. Depending on the circumstances, the court may allow some testimony: more commonly, the court will receive evidence in the form of deposition testimony. The temporary injunction hearing may be extremely critical for the former employee, because if the motion is granted, the employee may lack sufficient income to defend the balance of the case.

Court's discretion. The court considers several factors in deciding whether to grant or deny the temporary injunction:

How likely is the employer to win at the end of the case. The employer must demonstrate that it is likely to win at the end of the case?
How much harm--and what kind--will result to the employer if the temporary injunction is not granted?
How much harm--and what kind--will result to the employee if the temporary injunction is granted? (The employer will likely be required to post a bond to pay the employee's damages in the event the temporary injunction turns out to have been improperly granted.)
Are there special public policy or other equitable factors favoring or denying an injunction.

If the temporary injunction is not granted, the employer may proceed to seek damages nonetheless, or even attempt to convince the court to award a permanent injunction. But since no covenant may last forever, the force of the plaintiff's argument for a permanent injunction diminishes somewhat as the case ages. We do see examples, however, where a court denies a temporary injunction but later awards damages or even a permanent injunction. Covenant not to compete litigations may seem like life-or-death struggles. They sometimes entail hard feelings and can at times involve substantial expense. To avoid this expense, some employment contracts call for arbitration. Sometimes the lawyers and parties can arrive at an agreement which protects the legitimate interests of the employer, but preserves the employee's ability to move on in life.

The balance of the litigation proceeds much like many other cases. For a discussion of the progress of a typical litigation, see Anatomy of a Litigation. Some employment contracts contain forfeiture or "liquidated damages" provisions, wherein the employee forfeits severance pay, or agrees to pay a fixed amount in damages in the event of breach.