Utah Supreme Courts Defines Non-Compete and Tortious Interference Damages
Posted:
Thursday, December 04, 2008
By:
David M. Kight
Topic:
Non-Compete Cases
In a case of first impression, the Utah Supreme Court has held that the proper measure of damages for breach of a non-compete provision in an employment agreement is the lost profits suffered by the plaintiff rather than either restitution or unjust enrichment. The case, TruGreen Companies, L.L.C. v. Mower Brothers Inc., 2008 UT 81, Docket No. 20070451, came to the Utah Supreme Court from the U.S. District Court for the District of Utah to answer two separate questions: a) whether under Utah law what constitutes the appropriate measure of damages for a breach of a non-compete agreement – lost profits or restitution and unjust enrichment; and b) whether Utah recognizes unjust enrichment as damages for a tortious interference claim.
TruGreen, the plaintiff argued that unjust enrichment or restitution was the appropriate measure of damages, essentially contending that it should be entitled to recover the economic benefits realized by the competitor due to the breach of its employment agreement. The defendant, Mower Brothers, on the other hand, argued that the appropriate measure of damages for a breach of employment agreement would be only those lost profits which the plaintiff sustained.
As to the matter of damages for a breach of a non-compete agreement, the Utah Supreme Court agreed with the defendants: “[I]t is the loss sustained by the plaintiff that provides the core measure of damages for the breach of non-compete clauses. The gains enjoyed by the breaching employee can be relevant to that damage inquiry, but cannot alone support a damage award.” Id. at 7.
As for tortious interference losses, the court also adopted lost profits as the damage standard holding that “looking to the plaintiff’s losses is the appropriate method of measuring damages in cases of tortious interference with contractual and economic relations.” Id. at 9.
Key: When analyzing a potential cause of action for either breach of a restrictive covenant, or tortious interference in Utah, an analysis of your lost profits should be completed before filing suit.