February 24th, 2016

A breach of a restrictive covenant agreement containing a non-compete, confidentiality or non-solicitation provision can result in the dissemination of company trade secrets, loss of customers, and damage to a company’s goodwill. Similar claims may arise in employee lift-out cases, or when there has been the sale and purchase of a business or professional practice.  To stem the damage or likely risk of harm, most aggrieved employers will file a breach of contract suit and initially request emergency “injunctive” relief, via a “temporary restraining order” which can be granted ex parte on demonstrated need without a trial, and a “preliminary injunction” that can only issue after a hearing.

Following a phone call from a client reporting a breach by a current or former employee, we often find ourselves up late at night preparing injunction papers for filing the next day. The goal is to quickly convince the court that our employer client has sufficient grounds to issue a TRO that precludes any further actual or inevitable breach.  Such an order allows us and the client a period of time, usually just a few days, to gather additional facts in anticipate of a preliminary injunction hearing and or to engage in settlement discussions with the defendant.

Focusing on New York for the sake of simplicity (Injunction law, or put in a more scholarly way, the law of provisional remedies, is fairly consistent from state to state), Rule 6301 of New York Civil Practice Law and Rules, states as follows:

A preliminary injunction may be granted in any action where it appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff’s rights respecting the subject of the action, and tending to render the judgment ineffectual.

A preliminary injunction can only issue, however, after a hearing.  A TRO, on the other hand can issue immediately.  Pursuant to CPLR 6313:

If, on a motion for a preliminary injunction, the plaintiff shall show that immediate and irreparable injury, loss or damage will result unless the defendant is restrained before a hearing can be had, a temporary restraining order may granted without notice.  Upon granting a temporary restraining order, the court shall set the hearing for the preliminary injunction at the earliest possible time….

To obtain an injunction, a movant-the plaintiff-must convince the court of three things: (1) a probability of success on the merits, meaning that the plaintiff has enough evidence to convince a judge that the defendant has breached or his about to breach (as opposed to proof positive); (2) that the plaintiff will suffer irreparable harm absent an injunction, think: disclosure of the formula for Pepsi Cola; and (3) a balancing of the equities favoring the injunction.  This latter test requires the court to weigh the harm that each party will suffer with and without injunctive relief.  For example, precluding a salesperson with a non-compete from earning a living on one hand versus protecting his former employer from the harm caused by unfair competition.

Restrictive covenant injunction litigation is a strong and effective tool. It stops the offender in his or her tracks and sends the message to the defendant and existing employees, that breach will not be tolerated and that the employer is prepared to act and throw resources at defending its interests.   Given the exigent circumstances, the litigation tends to be fast and intense but generally of limited duration. The good news is that if there is evidence of theft of trade secrets, the improper use of those secrets, or interference with client relationships there will often be relief.

 

Posted in: Restrictive Covenants 101