Damages for Violating a Non-Compete Contract

Imagine you have a non-compete contract at work.

Your attorney tells you that the contract is likely unenforceable, so you take a job with a competitor and begin contacting your former customers. It’s smooth sailing until your ex-boss finds out, sends you a cease and desist letter by certified mail, and says in strongly worded legal mumbo jumbo, “Stop stealing our customers.”

Do you comply with the contract? Or, do you take a chance and risk a lawsuit?

You might feel confident in your legal position. No one can predict how a court might rule, though, so you need to think about what damages your former employer could recover at trial.

In Preferred System Solutions v. GP Consulting, the Supreme Court of Virginia gave us the answer: under Virginia law, companies can recover “lost profits proven with reasonable certainty” as potential damages for violating a non-compete contract.

A bit of background on the case:

PSS sued GP following GP’s termination of its contract with PSS and its commencement of a subsequent contract with Accenture, LLP, a PSS competitor. … PSS was ultimately awarded $172,395.96 in compensatory damages based on the circuit court’s finding that GP breached the noncompete clause in the parties’ contract.
On appeal, GP challenged the award of “lost profits” because PSS was never guaranteed to win any contracts to provide IT services to its customers.

The future may be uncertain, said the Court, but PSS was entitled to the “benefit of the bargain” in signing the noncompete agreement. PSS could recover the lost profits it would have sought had GP complied with the terms of the contract:

When a noncompete clause is breached, the nonbreaching party is entitled to the benefit of the bargain: to “put[] the party injured in the same position, as far as money can do it, as he would have been if the contract had been performed.”
The award of $172,395.96 was upheld for breaching the non-compete agreement.

Bottom Line: The lost profits need not be guaranteed. Instead, a party must show sufficient facts with reasonable certainty, such as a track record of past success, to estimate future lost profits. If you receive a cease and desist letter for contacting customers, take it seriously and speak with a Virginia attorney about your options. The damages for breaching the contract might be substantial.