Employment: Damages Recoverable For Violation of Non-Compete Agreements

11.01.09

Although Oklahoma laws frown upon any contracts that restrain the exercise of a lawful profession, trade or business, Oklahoma statutes do provide for the enforcement of non-competition agreements in situations where they are executed in connection with the sale of the goodwill of a business or the dissolution of a partnership. (15 O.S. §§ 218 and 219). Provided the non competition agreements are limited in time (2 years is generally accepted as a reasonable time period) and territory (limited to the county in which the active business is operated and any contiguous county), courts will generally enter injunctions to enforce the terms of the non competition agreements.

Monetary damages are also recoverable. However, the standards and requirements for proving monetary damages are not as clearly defined as those set for the issuance of injunctive relief. In the case of Southwest Stainless, LP and HD Supply, Inc. v. John R. Sappington; William B. Emmer; Rolled Alloys, Inc. and Ronald L. Siegenthaler (Case No. 08-5127), the Tenth Circuit Court of Appeals recently applied Oklahoma law in addressing damages recoverable for breach of a non-competition agreement.

In the Southwest Stainless case, the individual defendants Sappington and Emmer were found to have violated a non competition agreement after leaving their place of employment. The enforceability of the non-competition agreement does not appear to have been seriously challenged since it had previously been executed when the individual defendants had sold their business to the plaintiffs.

Were the Companies damaged monetarily?

The primary issues reviewed by the Tenth Circuit on appeal involved the district court’s determination of damages that were awarded to the plaintiffs. The individuals argued (1) that their breaches of the non-competition agreements did not cause damage to the companies, and (2) that the district court’s manner of calculating the damages awarded to the companies was incorrect.

The companies put on evidence designed to show that one of their customers had been diverted to the competing company by one of the individual defendants. The evidence presented showed that the individual defendant had worked with the customer prior to leaving his employment, that the customer had placed its order with the competing company days after the defendant had left, that the defendant had a friendly relationship with the purchasing contact of the customer and that the competing bid was just $856 less than that of plaintiffs. In response to the defendants argument that the plaintiffs could not show what the defendants purportedly did and how the damages had been caused, the Court of Appeals upheld the award of damages finding that the causal connection may be proved by circumstantial evidence, provided the evidence is not mere speculation but leads to the conclusion with reasonable certainty and probability. Because the district court did not merely speculate that the defendant caused the plaintiffs to lose the order, the circumstantial evidence was sufficient to justify the awarding of damages.

Similarly, the Tenth Circuit Court of Appeals held that the uncertainty as to the exact amount of damages would not preclude the right of recovery of lost profits, provided the award is not based on mere speculation. The amount of damages may be shown by “just and reasonable inference.” In this case, the profit margin extrapolated from the plaintiffs’ track record of doing business was sufficient to establish a basis for the calculation of damages. Interestingly, the Court cited a New Mexico Court of Appeals case for the proposition that the amount in dispute can impact what the court considers to be “sufficient” evidence to establish damages. Apparently, the Court believes that smaller awards of damages need not be supported with the same degree of evidence necessary to uphold larger awards.

Can you protect pricing information provided to a potential customer?

The Tenth Circuit’s opinion also dealt with the issue of misappropriation of trade secrets in this case. For companies who regularly submit competing bids to customers, it is worth noting that quotes and pricing information will not be treated as trade secret information, if provided to customers and vendors without restriction. In such cases, ex-employees may communicate pricing information to their new employers without misappropriating trade secrets. If a company wants its bids and pricing information to be treated as trade secrets, customers who receive that information must agree not to disclose it to others.

By Lewis N. Carter, lcarter@dsda.com
 

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
litigation and counsels clients regarding everyday employment matters. 

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