Be Careful When Using Liquidated Damages with Your Non-Compete Clause
A non-compete provision is different than most other contractual terms, because simply having mutual consent and consideration will not automatically render it enforceable for reasons of public policy, points out an article in The In-House Advisor by Shep Davidson of Burns & Levinson.
“While some businesses try to make an end-run around this law by requiring an employee to forfeit some benefit or pay liquidated damages if he/she competes against his/her company, any such requirement will be viewed through the same public policy lens used to scrutinize a formal non-compete provision,” he writes.
Davidson warns that, while a liquidated damages provision is not a silver bullet, if properly drafted, such a clause can be a significant deterrent to an employee who might otherwise decide to test the bounds of a non-compete.
