Businesses establishing working relationships with outside parties often include a variety of specific terms in their contracts. In addition to clarifying the expectations for both parties, the business may also impose certain limitations on conduct during and after the contractual relationship. Restrictive covenants are popular contract inclusions for good reason.
Instead of relying on the other party to behave with decency and dignity in the future, the contract can limit their activities to prevent them from doing something unethical and inappropriate. A vendor agreement or employment contract might include a non-disclosure or confidentiality clause. An employment agreement might also include a non-compete agreement intended to prevent an employee from starting a business in the same sector or taking a job with a direct competitor.
Restrictive covenants help prevent unfair competition and protect trade secrets. If one party violates a restrictive covenant, their actions could damage the other party’s competitive advantages. In such scenarios, initiating litigation to enforce a restrictive covenant could be an option.
How the courts respond to restrictive covenant breaches
As is the case with any type of contractual matter, the first step in enforcing restrictive covenant in the civil courts is the validation of the agreement itself. The courts review contracts and the restrictive covenants included in them to ensure that they are valid and enforceable agreements.
Provided that the terms included in the contract are valid and legal, then the courts consider the request made by the plaintiff who pursued the lawsuit. In some cases, the restrictive covenant may have included a significant penalty clause. Asking the courts to enforce that penalty can generate consequences for the party that breached the agreement.
The courts can also award damages based on the verifiable economic harm associated with the violation of a restrictive covenant. Judges also have the authority to issue injunctions that effectively prohibit one party from engaging in certain activities.
Particularly in scenarios where trade secrets have made their way into the hands of competitors or onto social media, where they become accessible to anyone, holding the other party accountable for the harm caused by breaching a restrictive covenant may be the only way to fairly resolve the situation. The disclosure of non-public information can diminish a company’s competitive advantages.
Taking legal action to enforce contractual protections for trade secrets and other intellectual property may be necessary in scenarios where other businesses or individuals refuse to uphold the agreements they’ve previously signed. Organizations that respond appropriately to contract violations can potentially mitigate harm caused by the disclosure of non-public information.
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