We recently wrote about the importance of having an enforceable noncompete in place in order to protect your business (Noncompete Restrictions: The First Line of Defense for Protecting the Company from Unfair Competition). But when it is necessary to obtain and injunction and to enforce that agreement, companies can’t expect to bluff their way to success.
Case in point, I was in Oakland County Circuit Court earlier this week defending against a motion for preliminary injunction that was filed by my client’s former employer. That employer was seeking to enforce a non-compete agreement and thereby restrict the client from working within a division of the new employer’s business. It had hired a well-established large law firm to make this case and despite significant efforts to reach a resolution prior to the hearing, the former employer insisted on going forward with the motion.
Noncompete Agreements and Preliminary Injunctions – A Matter of Briefings or Evidentiary Hearings
When it comes to preliminary injunction motions, at least in the Oakland County’ Court’s Business Courts, judges may decide the matter on the briefs or, more often than not, schedule an evidentiary hearing. An evidentiary hearing in this context is essentially a mini-trial with witness testimony and exhibits provided to the judge to determine if an injunction should be issued.
The judge in our case decided the issue on the briefs (the written submissions filed by the parties) and ruled in my client’s favor; The former employer’s motion for injunctive relief was denied, which means my client can continue to work for the new employer while the matter continues through the litigation process.
Noncompete Agreements and Preliminary Injunctions – You Can’t Just Show Up
In regard to defeating the motion for injunctive relief, it certainly helped to have a client who provided a text-book example of how to properly transition from one employer to another. On this point we were able to provide an affidavit accurately reflecting that the client had provided appropriate notice to the former employer, completely cooperated in any exit interviews, returned all employer provided equipment and resources, and, most importantly, did not take any company information after ending the employment relationship.
In contrast, the former employer offered numerous assertions based only upon “information and belief” that its former employer was violating the noncompete agreement and engaged in other alleged misconduct:
Upon information and belief Defendant … by way of repeated contact with Plaintiff[‘s] current customers … soliciting … current employees, and by using Confidential Information belonging to Plaintiff, has intentionally and tortiously interfered with Plaintiff[‘s] current and prospective economic advantage, business relationships and expectancies.
These strong accusations, however, lacked any factual support from the former employer – no affidavits were provided, no computer forensics, no witnesses were identified, not even the identity of any of the customers or employees were provided in the plaintiff’s complaint or motion. This lack of information allowed us to successfully argue that “information and belief” outside of legal circles is simply speculation and without admissible evidence the former employer failed to make the “particularized” showing of harm required for issuing an injunction.
And we further highlighted that the failure to make such a showing further undermined the motion because a number of assertions involved evidence that the former employer would have had access to, e.g., computer forensics supporting misappropriation claims, the identity of clients or employees claimed to have been wrongfully solicited, dates of solicitation, etc.
We also argued that injunction should not be issued because the plaintiff was not likely to be “successful on the merits” (an element required for injunctive relief). This argument relied, in part, upon the former employer’s own marketing materials and website, which identified a few distinct market segments it served. And those segments were not within an area code of the customers my client was now working with.
In short, even though it was the former employer’s burden to show injunctive relief was appropriate, we put a lot effort into attacking the assertions made by the former employer to show why they lacked merit. That effort paid off.
Obtaining injunctive relief when a former employee leaves for a competitor and is believed to have violated a noncompete agreement is a fact-intensive battle. And in this particular example, we happened to have and make use of the right facts to win that battle. We were also fortunate enough to have a plaintiff who made a minimal showing in supporting the motion for preliminary injunction.
But this also highlights the importance from the perspective of company in the role of the former employer to have a clear understanding as to the strengths, weaknesses, and risks in going forward with seeking injunctive relief or any legal claim for that matter. Sometimes the risks and/or likelihood of success are too speculative to warrant the expenditure of time, money, and resources. This particular case is probably a good example of this point.
Alternatively, this case illustrates that having in place an enforceable noncompete agreement is only the ante necessary to get into the game. But without the cards to go the distance, it can be an expensive bluff when it comes to seeking preliminary injunctive relief.
For more information about noncompete agreements under Michigan law and enforcing those agreements, contact attorney Jason Shinn. Since 2001, he has represented individuals and companies when it comes to noncompete disputes.