Employment contracts, vendor agreements and many other business contracts may include restrictive covenants. These agreements prohibit specific activities, such as competing against an employer, disclosing non-public information or attempting to solicit the company’s customers on behalf of another business.
Restrictive covenants often persist for long after a working relationship technically ends. The other party could violate the terms of the agreement long after leaving or ceasing to do business with an organization. Business leaders sometimes need to take legal action after discovering that a former employee, prior business partner or current vendor has violated a restrictive covenant.
How can the courts help enforce these agreements?
With injunctions
The courts can issue injunctions prohibiting certain activities when one party files a lawsuit or as a remedy for the legal issue that triggered the litigation. A judge can prevent a former business partner from moving forward with the formation of a new company that directly competes with the business they previously helped run. The courts can also prohibit outside parties from releasing information to the public.
With an award of damages
Violations of restrictive covenants frequently have direct economic consequences for businesses. If the company can show that it lost sales, sustained reputation damage or suffered a reduction of its market share, requesting financial compensation could be a realistic option.
When there are records showing that the violation of a restrictive covenant had financial consequences, a judge may agree to award financial compensation to the company affected by the breach of the agreement. There may be other remedies available as well, depending on the terms of the original agreement, the type of breach that occurred and the impact of that breach.
Reviewing a restrictive covenant and any inappropriate activities with a business litigation attorney can help executives and owners understand their rights. A successful contract-related lawsuit can prevent continued breaches and diminish the harm caused by the violation of a restrictive covenant.