Consequences of Breaching the Non-Competition Agreement

The employee may become liable for compensatory damages to his/her previous employer if he/she breaches his/her non-competition obligation.

Non-competition agreements usually provide for a contractual penalty which may not exceed an amount equivalent to the employee’s salary of six months. The restriction is not applicable to employees who are in a leading position or in a comparable independent position. The contractual penalty is often more practicable due to the difficulty of proving the loss. The contractual penalty must be paid regardless of the damage caused.

The employer cannot actually prevent the employee from taking a competing position or starting a competing business, but can only claim damages or compensation equivalent to a contractual penalty for the breach of the non-compete obligation. In practice, just the possibility of being liable for damage or having an obligation to pay contractual penalty diminishes employer’s interest on competing actions.