Friday, August 15, 2014

At a Preliminary Injunction Hearing, How Likely Is an Employer to Win?

There are problems with statistical analyses. One of them is that the data sampling size may not be reliable or that the parameters established tend to skew results.

I am no statistician, but I have enough of a background to be dangerous. I decided to conduct a fairly rudimentary analysis of reported non-compete decisions so that I conclude how likely companies were to obtain a preliminary injunction in non-compete disputes at a contested hearing. This is a very narrow inquiry.

Because I only have so much time (and a trial in 10 days), I tried to obtain the best data I could, realizing full well that it was simply a subset of the actual number of decisions floating somewhere in the public domain. But I believe my data is more reliable than those used to predict a presidential, here goes.

Conclusion: At a contested hearing, employers successfully obtain a preliminary injunction to enforce a non-compete agreement about 60% of the time.

Data Summary: I reviewed a sample of federal district court cases from July 2013 through August 14, 2014. I specifically limited my search to exclude appellate decisions (which would review the grant or denial of an injunction) and to exclude state trial court reports, because only a handful of states publish them online. Since federal courts issue opinions that follow the same general format, I found this to be the most reliable source of information. Finally, I only looked at preliminary injunction decisions after contested hearings, where the matter was fully briefed and the court had to decide issues of fact and law.

During this one-year window, I excluded the following from my analysis:

(1) Controversies between franchisors and franchisees (of which there were a significant number);
(2) TRO rulings, because those often times contain a sparse record for the court to consider and may not really be "contested" in the evidentiary sense;
(3) Non-compete issues arising out of a purchase or sale of a business; and
(4) Decisions that dealt only with trade secret enforcement.

I also took a subjective look at the case if the court was split (or granted the injunction only in part). That is, I made a qualitative assessment as to what kind of relief the moving party obtained and what it actually got after a hearing. If the party successfully enforced a key part of a restrictive covenant, I counted this as a favorable outcome for the employer. If it lost and only was able to enforce a non-disclosure covenant, I determined this to be a favorable outcome for the employee.

Other Observations: The data set was limited to 23 comprehensive decisions. This seems like a small number, but again, the parameters that I chose were very narrow and focused only on contested injunction hearings over a narrow span of time. I assessed what I believed were the court cases that met all the criteria in which I was interested in assessing. Though I expected to see 50 cases, the 23 I selected came from all across the country with both employer-friendly jurisdictions (Florida) and employee-friendly states (California) represented.

The conclusion of a 60% victory rate for employers after an injunction trial is, frankly, a little higher than I expected. This is so for a few reasons: (1) the difficult injunction standard employers must meet; (2) the hesitancy of courts to enforce restraints of trade; and (3) the perception that employees quickly settle obvious cases where the facts are bad. If all these are true, then I would think that contested hearings would skew in favor of employees. Apparently, not so.

Interestingly, I found no real clear pattern from the results. I found cases where courts refused to enforce agreements despite seemingly clear evidence of data theft, and cases where an employer enforced an agreement that appeared overly broad. There was no unifying theme among the decisions. This fits with the highly fact-intensive nature of these disputes.

All this underscores the fact that results are not predictable. I believe it is difficult to benchmark success when parties let a judge decide, and that it would be irresponsible to conclude that a party's chances of success ever are much greater than 50-60% even on the strongest facts.

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