Utah rules that damages for breach of a non-compete limited to lost profits
In a November 2008 decision, TruGreen Companies v. Mower Brothers, the Utah Supreme Court ruled that lost profits is the appropriate measure of damages for breach of a contractual non-compete provision.
In TrueGreen, TruGreen Companies had argued that an unjust enrichment or restitution measure of damages should be used. TruGreen sought to recover the economic benefit realized by its employees' breach of their non-compete agreements. The Utah Supreme Court rejected this argument as it expressly held that restitution or unjust enrichment was not an appropriate measure in non-compete actions. The court reasoned that restitution and unjust enrichment should only be used when no express contract is present. The use of these equitable remedies would "punish" the breaching party, according to the TruGreen court, and would be inconsistent with the basic rule of contract damages that the non-breaching party should be placed in the position that it would have enjoyed if the contract had been performed.
In reaching its decision, the court in TruGreen relied heavily on the 2007 decision by the Idaho Supreme Court in Trilogy Network Systems v. Johnson. The TruGreen court approved of the ruling in Trilogy that a plaintiff could "examine" the defendant's profits in an attempt to assess it own economic loss. A plaintiff can not rely solely on the defendant's gains to prove its lost profits, however, and must submit proof of its own costs and profits. Because the plaintiff in Trilogy had failed to introduce evidence about its own costs and profits, the Idaho Supreme Court declined to award damages because the plaintiff had failed to "to take the measure of its damages out of the realm of speculation".
In rejecting the use of restitution as a measure of damages for breach of non-compete provisions, Utah joins not only Idaho, but also a number of other states, including Wyoming, Alaska and Connecticut.
For those with non-competes governed by Colorado law, it is worth noting that Utah has not adopted a statute governing non-competes comparable to Colorado's. In that sense, Utah is generally more favorably inclined to enforce non-competes. It is also worth noting that the Utah Supreme Court's decision was limited to the question of the appropriate measure of damages for breach of a non-compete. Any employer seeking to recover damages in a non-compete case may face additional hurdles.
