Noncompete agreements are contractual agreements between employers and employees or business partners that restrict individuals from engaging in competitive activities after the termination of their employment or partnership. These agreements are designed to protect a company’s intellectual property, trade secrets, and client base. However, what happens when one party breaches the contract? Do you still have to honor a noncompete agreement if the other party fails to fulfill their obligations? In this article, we will explore the legal implications and considerations surrounding this question.

Understanding Noncompete Agreements

Noncompete agreements typically include provisions that restrict individuals from working in a similar industry or competing with their former employer or partner for a specific duration, within a defined geographic area. These agreements are considered enforceable if they are reasonable in terms of duration, geographical scope, and protection of legitimate business interests. However, noncompete agreements are subject to varying legal standards and jurisdictions, so it’s important to consult local laws and seek legal advice when faced with such situations.

The Breach of Contract

When a breach of contract occurs, one party fails to fulfill their obligations as outlined in the agreement. A breach can occur in various ways, such as failing to pay compensation, disclosing confidential information, or engaging in competitive activities prohibited by the noncompete agreement. In such cases, the party whose rights have been violated may seek legal remedies, including damages, injunctive relief, or specific performance, depending on the circumstances and applicable laws.

The Impact of Breach on Noncompete Agreements

In the context of noncompete agreements, the breach of contract by one party may have consequences for the enforcement of the agreement. While laws can differ from one jurisdiction to another, there are some general principles to consider:

  1. Material Breach: If the breach is considered a material breach, meaning it goes to the heart of the agreement, it could potentially release the other party from their obligations under the contract, including the noncompete agreement. This would depend on the specific terms of the contract and applicable laws.
  2. Severability Clause: Some noncompete agreements include a severability clause, which states that if one provision of the agreement is deemed unenforceable, the remaining provisions remain valid. In such cases, a breach of contract by one party may not invalidate the entire agreement, allowing the noncompete clause to still be enforceable.
  3. Equitable Considerations: Courts may consider equitable principles when determining the enforceability of a noncompete agreement in the case of a breach. If the party seeking to enforce the agreement has engaged in wrongful conduct or materially contributed to the breach, it may impact the court’s decision on whether to enforce the noncompete agreement.
  4. Legal Remedies: If one party breaches a noncompete agreement, the injured party may pursue legal remedies, such as seeking damages for financial losses caused by the breach. This approach allows the injured party to recover compensation instead of strictly enforcing the noncompete agreement.

Conclusion

When one party breaches a noncompete agreement, it raises questions about the enforceability of the agreement for both parties involved. While the breach itself doesn’t automatically invalidate the noncompete agreement, it can impact its enforcement, depending on the specific circumstances, the terms of the agreement, and the applicable laws. It is crucial to consult with legal professionals familiar with contract law and local jurisdiction to understand the options available in case of a breach.

Video Transcript

Do You Have to Honor a Noncompete Agreement if the Other Party Breached the Contract First?

Do you have to honor a noncompete agreement if the other party breached the contract first? This became a hot issue recently because Tucker Carlson left Fox News and apparently, he had a noncompete agreement with them. But then he opened his own show on Twitter and Fox News claimed that Tucker Carlson breached the noncompete agreement that Tucker had signed. Tucker Carlson came back and said, “You breached that agreement first, so I don’t have to honor it.”

If Another Party Breaches a Contract First, Are You Relieved From Performing Under the Contract?

The general rule of law is that if the first breach by the other party goes to the heart of the contract, then you are relieved from further performing under the contract. So I will say that in a different way. If the party that breached first materially breached, so their breach fundamentally went to the purpose of the contract, then you are relieved from further performing your obligations under the contract.

So Tucker Carlson’s argument is true that if Fox News did materially breach the contract, then Tucker is relieved of further performing. But we know what Fox is going to say. “It didn’t materially breach the contract. It might have breached the contract, but that breach did not go to the heart of the contract.” In other words, it was not a material breach. It wasn’t immaterial breach or not material breach.

Let me give you an example. Let’s say that Fox News (and I am making this all up now just to have a simple hypothetical), let’s say Fox News said, “Once Tucker is terminated, he can’t compete for two years, and during that two-year period, he will be paid $30,000 per month as compensation for that noncompete period.” And let’s say that Fox News did not make those monthly payments. Well, that, that seems to go to the heart of that. Part of the agreement. I think Tucker Carlson would have a good argument that if Fox is not making its monthly payments, then Tucker is relieved from further performing under the noncompete term. But let’s say Fox made the payment, but it continually made them two days late. Is that a material breach? Most courts would say, no, that is not a material breach. Tucker still got the money. It was just held up for two days. And if that didn’t make a big difference in Tucker’s life, having to wait two days, it is not a material breach. Let’s say that the payment came from Fox News to Tucker Carlson, but a wire transfer fee of 30 was removed from the $30,000 payment so, Tucker Carlson’s payment that he received each month was $30 short. Is that a material breach? In other words, does that go to the heart of the agreement? $30 isn’t that big a deal in the context of a $30,000 monthly payment. That would not be a material breach. So that means Tucker would not be released from performing under the noncompete agreement. He would need to abide by the noncompete agreement.

So as you can see, the question of whether you have to perform under a contract depends on whether the other party materially breached the contract, and honestly, that is not easy. It is not an easy analysis. It is not even easy for attorneys who work in this space to figure it out. For example, if I said, I will pay you a thousand dollars to paint my house, and you paint everything but the gutter, or let’s say you paint everything but one of the doors, you got 99% complete. Is that a material breach? I think most courts would say no, but let’s say I asked you to ship a load of materials from Japan to the United States, and you got 99% of the way there, and then the ship sank and so I didn’t get my materials, but you did 99% of the work. Is that a material breach? I think a court would say, yeah, it is because I didn’t get the products. Sure. You may have done a lot of the work, but at the heart of the agreement, I wanted the materials in the United States, and they didn’t get here.

Summary

So as you can see, it is not enough just that you do 99% of the work. There are a lot of factors a court will consider in determining whether a breach went to the heart of the agreement or when I say the heart of the agreement, I mean the fundamental purpose for which the agreement was formed.

Conclusion

All right. Well, thank you for joining me here today. If you would like more information on me, you can find it at aaronhall.com. If you would like to follow us on other platforms, just search for Aaron Hall, Attorney, on the various other social media platforms. And if you have other questions, I would be happy to see about answering them in future YouTube live videos. Feel free to add them in the comments below. It was great talking with you today. I hope this was helpful, and let’s stay in touch. You can sign up at aaronhall.com/free if you would like to receive those exclusive training videos for people who are trying to avoid common problems in small businesses. Have a great day.