VL SYSTEMS, INC. v. Unisen, Inc.

VL Systems, Inc. (VLS), and Star Trac Strength (Star Trac) entered into a short-term computer consulting contract. The contract provided that Star Trac would not hire any VLS employee for 12 months after the contract’s termination, subject to a liquidated damages provision. Within that period, Star Trac hired a VLS employee who had not performed any work for Star Trac, and indeed, had not been employed by VLS at the time the Star Trac contract was performed. VLS sued for breach of contract, and the court awarded it part of the amount it sought under liquidated damages provision. Star Trac now appeals, arguing the no-hire provision was unenforceable and that the liquidated damages award was improper. We agree that as written, the no-hire provision was unenforceable as a matter of law. The judgment is therefore reversed.

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FACTS

VLS is a computer software consulting company that provides technical consulting services to businesses in Southern California. VLS employs consultants who work with its customers on their particular project. Some contracts provide for a fixed fee, others are based on time and material estimates. Generally speaking, VLS bills its consultants’…