11th Circuit Upsets the Balance that Weighed in Favor of Employers Seeking Enforcement of Non-Compete Agreements

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Florida employers seeking injunctions to enforce noncompetition agreements should prepare for former employees to use this case to justify the denial of injunctions on the basis that the court should balance the employee’s hardships in its determination.

Florida Statute section 542.335 has long governed the substantive law of restrictive covenants in Florida. Under section 542.335(1)(g), a court may not consider in determining the enforceability of a restrictive covenant “any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.” Accordingly, Florida courts have long declined to consider the harm that a former employee would suffer if an injunction is issued to enforce a non-competition agreement.  (See, e.g., DePuy Orthopaedics, Inc. v. Waxman, 95 So. 3d 928, 940 (Fla. 1st DCA 2012) (rejecting former employees’ argument that they would suffer harm if they were enjoined, as being in conflict with section 542.335(1)(g); Fla. Digestive Health Specialists, LLP v. Colina, M.D., 2015 Fla. App. LEXIS 11556, *7 (Fla. Dist. Ct. App. 2d Dist. 2015) (holding that whether the party against whom the injunction is sought will suffer greater injury by imposition of the injunction is not part of the court’s consideration); N. Am. Products Corp. v. Moore, 196 F. Supp. 2d 1217, 1231 (M.D. Fla. 2002) (holding that the court is precluded from considering the individual economic hardship that the former employee would suffer if the covenant is enforced).)

A recent case from the 11th Circuit, TransUnion Risk & Alternative Data Solutions, Inc. v. MacLachlan, 2015 U.S. App. LEXIS 15124 (11th Cir. Aug. 27, 2015), potentially raises an employer’s burden when seeking a preliminary injunction.

Daniel MacLachlan served as CFO of Trans Union Risk and Alternative Data Solutions, Inc. (Trans Union).  MacLachlan signed a one year “Noncompetition and Nonsolicitation Agreement” during his employment with Trans Union.  The agreement prohibited him from working for a competitor for one year after his termination from Trans Union. Less than seven months after signing the agreement, MacLachlan resigned from Trans Union and signed an employment agreement with an investment company which had acquired a Trans Union competitor in the data services industry.

Trans Union initiated a diversity action in federal court to enforce the agreement and moved for a preliminary injunction. The district court granted the preliminary injunction, prohibiting MacLachlan for one year or until the final resolution of the case, whichever is sooner, from continuing employment with the competitor or engaging in a business or activity that is the same as or similar to any business conducted by Trans Union.

MacLachlan appealed the district court’s application of section 542.335(1)(g) to the preliminary injunction analysis, which precluded any consideration of the potential hardship to MacLachlan when the court balanced the harms under Federal Rule of Civil Procedure 65.

The court applied federal procedure to determine whether a preliminary injunction was properly issued.  Under federal procedure, a moving party must establish four elements to obtain a preliminary injunction:

  1. Substantial likelihood of success on the merits;
  2. Irreparable injury will be suffered unless the injunction is issued;
  3. Threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and
  4. The injunction, if issued would not be adverse to the public interest.

On the surface it appears that section 542.335 and the third element of Rule 65 conflict.  However, the TransUnion court held that section 542.336(1)(g) governs the enforceability of restrictive covenants, not the enforcement of an already enforceable restrictive covenant.  The court focused its analysis on the section’s opening content “[i]n determining the enforceability of a restrictive covenant…” for its conclusion that the section is only applicable to the determination of whether a restrictive covenant is enforceable. Accordingly, section 542.335(1)(g) should not be applied when determining the appropriate and effective remedy for an enforceable restrictive covenant.

The court held that because the district court erroneously applied section 542.335(1)(g), it failed to consider any harm that MacLachlan would suffer if the injunction is issued.  Consequently, the court vacated the district court’s order granting the injunction and remanding the matter for the district court to balance the harms of both TransUnion and MacLachlan.

The scope of this decision’s application is potentially limited because it was decided in the context of Federal Rule of Civil Procedure 65. Although, Florida civil procedure has a similar rule requiring “balancing” when granting injunctions, so the TransUnion court’s logic may be equally applicable to state court decisions.  If courts accept its reasoning, employers may have a difficult time obtaining an injunction because courts will not apply section 542.335(1)(g)’s prohibition to consider the former employee’s hardship.  The full effect of this decision is unknown because it is an unpublished decision.  Although the decision is not binding precedent, it may be cited as persuasive authority.

Contributor:  Jessica A. Schoendienst, Law Clerk | Weintraub Tobin

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