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Damages That Employers Can Recover for Breach of a Non-Compete in New York

Leaving aside the issue of whether a former employer succeeds in securing an injunction barring his former employee from continuing to poach clients and other employees, a critical question that requires analysis is what potential damages (assuming they would be collectible) a former employer can recover for this disloyal employee's breach of his agreement.

To that end, New York's courts have clearly held that the employer can recover his lost profits that directly result from the breach of the non-compete agreement, stating " “[T]he proper measure of damages [for breach of a restrictive covenant not to compete] is the net profit of which plaintiff was deprived by reason of defendant[s'] improper competition with plaintiff” (Pencom Sys. v. Shapiro, 193 A.D.2d 561, 598 N.Y.S.2d 212; see also Gomez v. Bicknell, 302 A.D.2d 107, 756 N.Y.S.2d 209; Support Sys. Assocs. v. Tavolacci, 135 A.D.2d 704, 522 N.Y.S.2d 604).

At this juncture, one point should be made very clear: the employer will only be able to recover his lost net profits - not his gross profits - that directly result from the employee's actions.

But here's an interesting caveat to that rule: if the employee engaged in these improper acts while he was still employed by the plaintiff/former employer (thereby breaching his fiduciary duties to the employer), the employer will be entitled to recover all of the profits that the employee gained during that time, or as New York's courts have stated, "Disgorgement of defendant's profits would be the proper measure of damage if defendant had used the trade secrets for his own benefit while still in plaintiff's employ."