Tuesday, December 29, 2009

Legal Precedent Thin on Whether Employee Can Seek Injunctive Relief Preventing Enforcement of Invalid Non-Compete (Frank v. Wesco Distribution)

At least ninety percent of all non-compete disputes start with an employer filing a lawsuit and seeking some form of injunctive relief to prevent a further breach of contract. It is the rare case where an employee initiates a claim against an ex-employer, where the preferred remedy is a declaration that the non-compete is invalid.

The employee-side claim can arise in a number of situations. Perhaps an employee's non-compete concerns a forfeiture-for-competition covenant, in which the employee needs to determine the validity of an agreement before risking forfeiture of stock options or deferred compensation. In some cases, a non-compete term could be lengthy enough that the litigation won't run its course by the time a non-compete expires. And in other cases, the employee may use the litigation as leverage to effectuate a settlement on less restrictive terms. But in all of these cases, the relief available to an employee is fairly narrow and does not pose any immediate problem for the defending employer.

I recently litigated a case where I represented an employee who filed a declaratory judgment claim seeking to have his non-compete invalidated on grounds of overbreadth. After four lengthy months, we prevailed and my client was able to take the job that - mercifully- had not been filled while the litigation was pending. For (mostly) tactical reasons, though, we initially aimed for another remedy - a preliminary injunction prohibiting the employer from attempting to enforce the non-compete agreement or interfere with any prospective job opportunities through threats of enforcement.

The trial judge denied my emergency petition, not on the grounds that such relief was automatically unavailable but rather on practicality. He did not feel the injunction, if granted, would cause the prospective employer to hire my client. My personal view on this is that the judge may have been correct; I'm still not sure. The issue, though, is not easily resolved.

We as lawyers are not guided by much in the way of precedent on this issue. I have located only four reported decisions approving of an injunction in the scenario I have just described: Brenneman v. NVR, Inc., 2007 U.S. Dist. LEXIS 12761 (S.D. Ohio Feb. 9, 2007), Bryan v. Hall Chemical Co., 993 F. 2d 831 (11th Cir. 1993) (Georgia), Caras v. The American Original Corp., 1987 Del. Ch. LEXIS 467 (Del. Ch. July 31, 1987), and a recent appeal (cite below) in New York, Frank v. Wesco Distribution, Inc. Because so few disputes arise in this procedural posture, I don't expect we'll see cases like Wesco Distribution all that often. But attorneys representing employees should be aware of them nonetheless.

As a practical tip, however, I would recommend that any lawyer seeking preliminary injunctive relief like this clearly define what he or she wants the court to do. Simply asking the court to bar an employer from "enforcing" a non-compete probably is too broad of a request and almost sounds like it is asking for a court to enjoin a future court proceeding (perhaps in a different venue or in a different court system). The better practice, it seems, is to request (in addition to this) that the court prohibit the ex-employer from interfering with a specific job opportunity or from representing to third-parties that an employee is barred from working on account of a non-compete agreement.


Court: Supreme Court of New York, Appellate Division, First Department
Opinion Date: 12/22/09
Cite: Frank v. Wesco Distribution, Inc., 892 N.Y.S.2d 348 (N.Y. App. Div. 1st Dep't 2009)
Favors: Employee
Law: New York

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