Applying Missouri law, the United States Court of Appeals for the Eighth Circuit recently affirmed an award of $1,369,921 in liquidated damages stemming from the alleged violation of non-solicitation agreements by four former employees of accounting firm Mayer Hoffman McCann. Mayer Hoffman McCann, P.C. v. Thomas L. Barton et al., Case No. 09-2061 (8th Cir. August 11, 2010). In pertinent part, these agreements provided that for two years following the termination of employment, the employees could not solicit clients and employees of their former employer. The agreements also contained a liquidated damages provision.
The Court held that the two year duration was reasonable and further held that the absence of a geographic restriction was not a problem, because “a customer restriction may substitute for an explicit geographical restriction.”
Regarding the liquidated damages provision, the Court explained that
the issue here is whether the parties intended the provision to be a form of recoverable compensation – liquidated damages – or an unenforceable penalty provision meant to compel performance. In order to distinguish between the two, we ask whether: ‘(1) the amount fixed as damages [is] a reasonable forecast for the harm caused by the breach; and (2) the harm [is] of a kind difficult to accurately estimate.’
Because the Court found that both requirements were met in this case, it affirmed the trial court’s award of $1,369,921 in liquidated damages, calculated based upon gross billings to 124 former clients who moved their business after being improperly solicited.