10.3 Remedies

• Library: Employment Law in Virginia (Virginia CLE) (2020 Ed.)

10.3 REMEDIES

Injunctive relief generally is the preferred remedy for violation of a covenant not to compete, but damages also may be available.

10.301 Injunctive Relief: State Court. The trial court has the discretion to grant or deny an injunction. ⁸³ Equity will enforce noncompetition covenants by injunction when warranted by the facts of a particular case. ⁸⁴ If the hardship to a defendant or to the public is disproportionate to the potential injury to the plaintiff, the court will deny the injunction and leave the plaintiff to its legal remedies. ⁸⁵

The party seeking to enforce the covenant must demonstrate the likelihood of irreparable harm and inadequacy of monetary damages in order to obtain relief. ⁸⁶

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Inclusion of a claim of violation of a statute that provides for injunctive relief, such as the Virginia Uniform Trade Secrets Act, may enhance the chances of obtaining an injunction. If a statute provides for injunctive relief, the party seeking the injunction is not required to establish the traditional prerequisites of irreparable harm and lack of adequate remedy at law unless the statute provides otherwise. ⁸⁷

Because the Virginia Supreme Court has not delineated the standards to be applied in granting or denying a preliminary injunction, circuit courts have frequently applied the prevailing federal standard to evaluate whether a preliminary injunction is appropriate, ⁸⁸ but other state circuit courts have applied a more traditional test. ⁸⁹ The Virginia Supreme Court in Levisa Coal Co. v. Consolidation Coal Co. ⁹⁰ acknowledged the four-factor approach set forth in Blackwelder Furniture Co. v. Seilig Manufacturing Co., ⁹¹ but neither accepted nor rejected the Blackwelder test. Blackwelder was later rejected by the Fourth Circuit Court of Appeals. ⁹²

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If the former employer acts promptly, the court may start running the noncompetition period from the issuance of the injunction rather than from the date of the employee's departure. ⁹³

10.302 Injunctive Relief: Federal Court. To obtain a preliminary injunction in federal court, parties must establish (i) that they are likely to succeed on the merits; (ii) that they are likely to suffer irreparable harm in the absence of preliminary relief; (iii) that the balance of equities tips in their favor; and (iv) that an injunction is in the public interest. ⁹⁴

Federal courts in Virginia have held that proof of a covenant not to compete and a resulting possibility of loss of customers or goodwill satisfy the "irreparable harm" element, ⁹⁵ but another held that this is not necessarily sufficient. ⁹⁶

On an application for a permanent injunction, the court must determine (i) whether the plaintiff has succeeded on the merits; (ii) if so, whether there is

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an adequate remedy at law; (iii) whether the balance of hardship favors the plaintiff; and (iv) what kind of injunctive relief is appropriate. ⁹⁷

10.303 Damages. In addition to equitable relief, compensatory and punitive damages may be available. ⁹⁸ The measure of compensatory damages is generally the amount of lost profits. ⁹⁹ The defendant's "ill will, malevolence, grudge, spite, wicked intention or a conscious disregard of [the plaintiff's] rights" must be shown to recover punitive damages. ¹⁰⁰

10.304 Declaratory Judgment. A party to a covenant not to compete may be able to obtain a declaratory judgment concerning enforceability pursuant to section 8.01-184 of the Virginia Code. ¹⁰¹

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Notes:

^[83] Preferred Sys. Solutions, 284 Va. at 401, 732 S.E.2d at 686 (citing Levisa Coal Co. v. Consolidation Coal Co., 276 Va. 44, 60, 662 S.E.2d 44, 53 (2008)); Mobley v. Saponi Corp., 215 Va. 643, 212 S.E.2d 287 (1975); Akers v. Mathieson Alkali Works, 151 Va. 1, 144 S.E. 492 (1928).

^[84] CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 431 S.E.2d 277 (1993).

^[85] Mobley, 215 Va. 643, 212 S.E.2d 287 (citing Akers...