Contract Remedies: Specific Situations: Personal Services Contracts

Question 1

What general issues arise with regards to personal services contracts and remedies?

Answer 1

1. What remedies are available for personal service K’s
   - damages
   - restitution
   - specific performance
2. Enforcement of Negative Covenants
   - During Term of Employment
   - After Term of Employment

Question 2

In general, what remedies may be available for personal service K’s?

Answer 2

1. damages
2. restitution
3. specific performance

Question 3

With regards to MONEY DAMAGES, what are the damages if

• an employee breaches?
• an employer breaches?

Answer 3

If EE breaches –> ER recovers cost of obtaining replacement

If ER breaches –> EE gets:
[wages promises] LESS [avoidable damages]

NOTE –> if wrongful dismissal is tortious, EE may recover lost wages, emotional distress, and punitive damages

Question 4

With regards to RESTITUTION, what are the damages if

• an employer breaches?
• an employee breaches?

Answer 4

IF ER breaches –> EE is entitled to REASONABLE VALUE of services, even above K price

IF EE breaches –>

• ER can get restitution of PAID but UNEARNED wages
• Breaching EE can get value of services rendered (limited by contract rate) less ER’s damages

Question 5

What issue arises with regards to “negative covenants during term of employment K”?

Answer 5

• Usually, this refers to EE’s promise not to work for anyone else during K term
• Courts WILL enforce this

NOTE –> covenant WILL be implied if EE promised full time or exclusive services

Issues:

1. Requirements
2. Defenses

Question 6

What are the requirements for court to enforce EE’s promise not to work for anyone else during K term?

Answer 6

1. Inadequacy of damages (ie..service must be unique)
2. feasibility (HOWEVER, this is not a problem in this case)
3. conditions to EE’s employment must be satisfied (ie.. employer must furnish proper place to work and pay promised wages)
4. no defenses

NOTE –> some courts require “independent significance” of covenant (ie.. breach would cause ER harm beyond that caused by breach of the affirmative covenant)

Question 7

What are the defenses to negative covenant during term of employment K (covenant not to work for someone else)?

Answer 7

1. include all defenses against specific performance

NOTE –> argument that EE is prevented from earning a living is not enough

HOWEVER –> injunction will be dissolved if ER is not “ready, willing, and able” to accept D’s performance

Question 8

What issues arise with regards to “negative covenants after termination of employment” (covenant not to compete)?

Answer 8

Scenario –> clause in employment agreement (or sale of business) that require EE not to compete for a period following employment

ISSUES:

2. when are damages an adequate remedy
3. when is injunctive relief appropriate?

Question 9

With regards to a covenant not to compete (following employment) - when are damages an adequate remedy?

Answer 9

Damage = adequate IF —> EE’s services are ordinary

Damages NOT adequate IF –>

1. EE’s services are UNIQUE; or
2. TRADE SECRETS or GOODWILL are involved

Question 10

With regards to covenant not to compete (following employment) - when is an injunction appropriate?

Answer 10

1. damages are inadequate; AND
2. restriction is REASONABLE in TIME and SPACE and no broader than necessary to protect the ER

NOTE –> courts are less likely to find “REASONABLENESS” if restriction bans EE from competing after termination

Question 11

What happens if a covenant not to compete is over broad?

Answer 11

Some Courts (“Blue Pencil Rule”) –> allows over broad covenant to be enforced to extent reasonable

Other courts –> hold such covenants VOID as ILLEGAL RESTRAINT of TRADE

Question 12

With regards to a covenant not to compete - do liquidated damages preclude injunctive relief?

Answer 12

No