Key Takeaways

  • Types of Damages for Breach of Contract: Includes compensatory, liquidation, punitive, nominal, and general damages.
  • Breach of NDA Consequences: Monetary damages, equitable remedies, and legal consequences vary based on jurisdiction and contract terms.
  • Additional Damages: Incidental and reliance damages are other types of compensations available.
  • Equitable Remedies Expansion: Courts may enforce injunctive relief to prevent further breaches.
  • Contractual Clauses Impact on Breaches: Confidentiality clauses, penalties, and arbitration clauses affect how NDA breaches are handled.
  • Legal Actions for Breach of NDA: Employers and businesses can pursue injunctions or lawsuits for damages.
  • How to Mitigate NDA Breaches: Companies should ensure clear, enforceable NDAs and take preventive measures.

There are many types of damages for breach of contract that you may receive should a breach occur, these being meted out both to deter parties from breaking contracts and to compensate parties should a contract be broken. The main types of damages are compensatory, liquidation, punitive, nominal, and ordinary damages.

Compensatory Damages

Compensatory damages are monetary damages that are awarded with the intent of compensating the non-breaching party for any losses suffered as a result of a contract breach. They are not designed to punish the breaching party, but merely make the party that was breached against “whole again,” as it is commonly phrased.

As an example, if a contract were signed in which Party A agreed to pay Party B $5,000 for consulting services, but Party A breached the contract by not then using the services and not paying, then Party B would be entitled to $5,000 in compensation. On the other hand, if Party B broke the contract and party A was forced to hire a different consultant for $6,000, Party A would be entitled to $1,000, that being the difference in the contract fee.

In the realm of compensatory damages, there are two sub-types of damages, and they are:

  • Expectation damages. These are meant to cover whatever the injured party expected to obtain from the contract. Calculating this is usually straightforward, as it is usually based on the terms of the contract or market values.
  • Consequential damages. These are meant to reimburse an injured party for any indirect damages outside of what was covered in the contract. This could include, for example, the loss of business profits stemming from an undelivered piece of equipment. In order for consequential damages to be awarded, injuries must be judged to have been either a direct result of the breach of contract or reasonably foreseen by both parties at the time of entering the contract.

Incidental and Reliance Damages

In addition to compensatory damages, courts may award incidental damages and reliance damages:

  • Incidental damages: These cover additional expenses incurred due to a contract breach. For example, if a party must hire a new consultant due to a contract breach, travel or administrative costs related to securing that consultant may be included.
  • Reliance damages: Awarded when a party has relied on the contract and incurred costs in preparation for its fulfillment. These damages aim to restore the injured party to the financial position they were in before entering the contract.

Liquidation Damages

Liquidation damages are damages that are stated specifically in the contract. They can be put in a contract when damages are difficult to foresee, and an estimate is necessary for damages should there be a breach. Thus, such damages are agreed upon by both parties during the contract negotiation.

For instance, if Party A contracts Party B to build a new building that they need for use by a certain date, they could include a provision in the contract that Part B must pay $1,000 per day for every day longer it takes them to finish the building than the date stipulated in the contract.

However, courts can tend to be hesitant to award liquidation damages that they judge to be excessive. To avoid this then, you will want any liquidation damage amount to be reasonable. To help in judging this, some state laws restrict the amount of liquidation damages that can be awarded.

Contractual Clauses That Impact NDA Breach Consequences

When a breach of NDA occurs, the damages and legal actions depend on specific contractual clauses, including:

  • Confidentiality Clauses: Define what constitutes a breach and outline penalties.
  • Non-Compete and Non-Solicitation Clauses: Prevent the disclosure of trade secrets to competitors.
  • Arbitration Clauses: Require disputes to be resolved through arbitration instead of court.
  • Penalty Clauses: May outline predetermined financial consequences for breaches.

Carefully drafted NDAs help businesses mitigate risks by specifying the scope of confidential information, time limitations, and legal recourse.

Punitive Damages

Punitive damages are damages designed to punish a breaching party and deter parties from committing breaches. Such damages are rarely awarded for contract breaches, however, although they may be awarded in some tort or fraud cases that overlap contract cases.

Legal Actions for Breach of NDA

Businesses and employers have multiple legal avenues to enforce NDAs and seek damages for violations. Depending on the severity and jurisdiction, they may:

  • File a lawsuit for breach of contract to claim monetary damages.
  • Pursue injunctive relief to prevent further disclosure.
  • Seek liquidated damages if pre-agreed penalties were established.
  • Invoke trade secret protection laws to sue for misappropriation.

In severe cases, particularly those involving corporate espionage or intellectual property theft, criminal charges may also be pursued.

Nominal Damages

Nominal damages are dispensed when the injured party did not suffer a monetary loss, but a judge wants to show that the injured party is in the right. Generally, nominal damages are very small in amount and are more symbolic in nature.

Ordinary or General Damages

These are damages that stem from the ordinary, natural, and probable course of events in the breach of contract. For example, if Party A agreed to sell Party B grain at $20 per bag with the payment to be made at the time of deliver, but the market price rose to $25 per bag by the time of delivery and Party B as a result refused to sell for anything less than $25 per bag, Party A can then claim damages of $5 per bag.

Mitigating NDA Breaches

To reduce the risk of breach of NDA, businesses should take proactive measures, such as:

  1. Using Clear and Enforceable NDA Terms: Ensure NDAs clearly define confidential information and specify restrictions.
  2. Limiting Access to Confidential Data: Restrict access to sensitive information to only those who need it.
  3. Implementing Monitoring Systems: Use security protocols to track unauthorized disclosures.
  4. Regularly Reviewing and Updating NDAs: Ensure contracts align with current laws and business needs.
  5. Educating Employees and Partners: Conduct training on the importance of NDAs and confidentiality obligations.

Properly structured NDAs and proactive risk management strategies help prevent breaches and ensure legal enforceability.

Equitable Remedies

In some cases, monetary damages may be judged insufficient to compensate the aggrieved party. In this case, equitable remedies may be awarded. Equitable remedies involve a court ordering a party or parties to act or not act in a certain way. Examples could include:

  • Specific performance. This could include but is not limited to, forcing the breaching party to perform their end of the contract.
  • Contract rescission. In this, the old contract is canceled, and a new one is drawn up.
  • Contract reformation. In this, the old contract is rewritten to reflect the true intent of the parties.

Injunctive Relief for NDA Breaches

In the case of a breach of NDA, courts frequently award injunctive relief rather than monetary damages. Injunctive relief prevents the breaching party from further disclosing or using confidential information. The types of injunctions include:

  • Temporary Restraining Orders (TROs): Immediate but short-term orders to prevent further NDA violations.
  • Preliminary Injunctions: Court orders preventing disclosure while a legal case is pending.
  • Permanent Injunctions: Long-term court orders barring the breaching party from continuing to misuse confidential information.

Injunctive relief is particularly crucial in trade secret protection cases, where financial damages may not adequately address the competitive harm caused.

Frequently Asked Questions

1. What happens if I breach an NDA?

A breach of NDA can lead to financial penalties, legal action, and injunctive relief. In some cases, criminal charges may apply if trade secrets are involved.

2. Can an NDA breach lead to criminal charges?

Yes, if the breach involves trade secret theft, fraud, or intentional misrepresentation, criminal charges may be pursued under state or federal laws.

3. How can I prove a breach of NDA?

Proving a breach involves demonstrating that confidential information was disclosed without authorization, resulting in damages or competitive harm.

4. What damages can I recover for an NDA breach?

Damages may include compensatory damages, liquidated damages, and equitable remedies such as injunctions to prevent further disclosure.

5. Can an NDA be enforced if the information is already public?

Once information becomes public, enforcing an NDA may be challenging unless the disclosure was wrongful and the damages extend beyond public knowledge.

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