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Scrambled Eggs and Punitive Damages in Employee Restrictive Covenant Litigation

Posted March 19, 2016
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Businesses now have a good case to support recovery of attorney's fees just for scrambling to court to keep a former employee from violating a non-competition or non-solicitation agreement, even if the company has suffered no other harm. You can catch up on non-competition agreements by reading this.

A case I blogged about in the past, here and here, serves as a wakeup call to executives and professionals who have agreed to not compete with their former employers, or agreed to not solicit their former employer's customers. The court ended up awarding punitive damages to the former employer in the form of attorney's fees. While the contract may have had an attorney fee shifting provision (the opinion doesn't say so - but put one in your agreements anyway), the court relied on the nature of the former employee's conduct. Promises, some say, are made to be broken.  Well, here, the departing employee did just that.  He had agreed to not solicit his employer's customers if he left, but when he did leave, he broke his promise "intentionally" and, said the court, without "justification."

This conduct, while the former employer lost no business, left the employer to scramble to enforce the promise.  Expensive scrambling because the former employee was ordered to pay $104,000 in attorney's fees and $8,500 in costs.  Under Connecticut law, every contract has a promise by both parties to act in good faith and deal fairly with each other.  When one acts in bad faith, which can be as simple as "evading the spirit of the bargain," they justify the court punishing them with an award like this for punitive damages.

These awards are not typical in these types of cases, and are not even typical in contract cases.  But it can happen (read here about a case of bad faith we handled).  This case, while not binding on other courts, sets the bar lower than where most attorneys see it.  But that's the sign of good lawyering.  The judge was clearly angered at the former employee who thumbed his nose at the contract he had signed.

The Upshot for Your Business (and executive and professional employees) - do a gut check. Are you breaking a promise for self-interested motives?  Or can you (or your lawyer) come up with some justification?  It may make the difference between paying the other side's attorneys in addition to your own if you lose the case.

Q4U: Would you pursue a lawsuit just to send a message if you knew you had a good chance of making the other side pay your attorney's fees?

About the Author

Business and Employment Litigation Attorney Anthony Minchella

Tony represents Fortune 50 financial services companies, retail giants, and small and large specialty products companies in employment litigation, trade secret and non-competition litigation, and unfair trade practice issues. When acting as local counsel, Tony, an adjunct professor of law on Connecticut Civil Procedure at Quinnipiac Law School, helps lead counsel navigate the nuances of Connecticut state and federal court practice. Tony graduated magna cum laude from Quinnipiac University School of Law. He passed the New Jersey, New York and Connecticut bar exams and then moved on to careers with large and small firms which led to his boutique litigation practice.