At Shields Petitti & Zoldan, PLC, we help Arizona employees and employers navigate difficult workplace disputes. One of the most common questions we hear is, What happens if you violate a non-compete agreement? Depending on your circumstances, a breaching party may have to pay the other party or comply with a court order restricting their business activities.
The best way to know what to expect after someone’s noncompliance with a non-compete agreement is to speak to a knowledgeable employment attorney. Our legal team at Shields Petitti & Zoldan, PLC has many decades of combined experience. We have recovered tens of millions for our clients and are here to help you protect your professional rights and interests.
What Is a Non-Competition Agreement?
A non-competition agreement (or non-compete agreement) is a contract between an employer and an employee that limits an employee’s work options during their employment or after they leave their employer. This type of agreement can restrict an employee’s ability to:
- Work for a competitor,
- Start a competing business, or
- Do business with certain clients or colleagues.
Employers use these agreements to protect their confidential information, customer relationships, and investments in employee training. Employees sign these contracts in exchange for employment benefits.
In general, Arizona courts enforce non-compete agreements only if they are reasonable in:
- Scope,
- Duration, and
- Geography.
A court may strike down a non-compete that is too broad, unfair, or punitive. Let’s look at what happens if you violate a non-compete agreement.
What Are the Consequences of Violating a Non-Compete?
If you violate a non-compete agreement, the consequences depend on the agreement’s terms, the harm to the employer, and how a court views the situation.
If an employee breaches a non-compete, the employer may respond in several ways, such as:
- Seek damages for related financial losses,
- Request injunctive relief or a temporary restraining order (TRO) to stop the employee from continuing the violation, or
- Ask the court to enforce any liquidated damages provisions in the contract.
Each of these remedies in Arizona can have serious implications for both parties.
Regular Damages for a Non-Compete Violation
One of the most direct non-compete breach remedies is damages. If an employee leaves and takes customers or trade secrets to a competitor, the employer may claim lost profits as damages. An employer might also seek damages to cover the cost of updating compromised business secrets or addressing workforce gaps sooner than anticipated.
Sometimes, damages are hard to measure. How do you calculate the value of future sales or deals? You might be able to use the following:
- Copies of past contract terms and prices,
- Market research, and
- Copies of business expense reports.
Some non-compete contracts address the issue of proof by including a liquidated damages clause.
TRO and Injunction for a Non-Compete in Arizona
Sometimes, money alone cannot protect an employer’s interests. That is why Arizona employers often seek injunctive relief after a breach. An injunction is a court order that stops an employee from engaging in competitive activities. In urgent cases, a court may issue a temporary restraining order (TRO) to immediately stop the violation while the case proceeds.
To win a TRO or injunction in a non-compete case, the employer must show:
- A likelihood of success on the merits of the employer’s claim,
- A likelihood of the employer suffering irreparable harm without the injunction,
- That the balance of hardships favors the employer, and
- That enforcing the non-compete serves the public interest.
Courts apply these standards carefully because an injunction directly affects a person’s ability to work. However, violating a non-compete could result in a court order preventing an employee from working in their chosen field during the restricted period. An employer should consider whether they have enough proof of harm to justify an injunction; otherwise, they might waste thousands of dollars on fruitless litigation.
Liquidated Damages for a Non-Compete Violation
A liquidated damages provision sets a predetermined amount the employee must pay if they breach a contract. Arizona courts enforce such provisions only if the amount compensates the employer for its losses and not to punish the employee. An amount that is large, fixed, and does not fluctuate depending on the level of the employee’s breach might be deemed an unenforceable penalty.
What to Do After a Breach
If you are an employee facing claims of a non-compete violation, do not ignore them. You could open yourself to damages and court orders that limit your earning capacity. Your best step is to pull out your employment contract and contact an experienced employment attorney.
If you are an employer, enforcing a non-compete requires precision. Courts in Arizona do not uphold contracts that are overly broad or punitive. To protect your business, you should work with a lawyer to draft enforceable agreements and pursue remedies when violations occur.
We Can Reduce the Damage
At Shields Petitti & Zoldan, we guide both employees and employers through high-stakes disputes. We are a highly experienced and award-winning team. Contact us online or by phone for a confidential consultation.
Attorney Michael Zoldan provides legal counsel to individuals and small businesses throughout Arizona. Mr. Zoldan’s practice is based on aggressive and detail-oriented representation, focusing on employment discrimination, wage and hour disputes, harassment, and wrongful termination. Prior to forming Shields Petitti & Zoldan, Mr. Zoldan worked for numerous law firms where he had an opportunity to hone his litigation skills by working on multiple litigation cases at a time with some of the most skilled litigators in the state.
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