Enforcing Non-Compete Agreements in Texas with an Injunction Requires Proper Timing

Enforcing Non-Compete Agreements in TexasCompanies often contact me wanting to know what they can do to stop a former employee from competing in violation of his/her non-compete agreement. One of the available remedies that can provide an immediate relief to the company is a temporary injunction (state court) or a preliminary injunction (federal court).

An injunction is a court order that can require an employee to comply with his or her non-compete restraints while the parties litigate their case.  Its purpose is to provide an immediate and temporary relief and prevent any irreparable harm that a company may suffer if its employee is allowed to compete.

What a lot of companies do not realize, however, is that if they wait too long to ask for an injunction after finding out about their employee’s competitive activities, a court may deny their request simply because they waited too long. 

A recent opinion from the U.S. District Court in the Western District, where the judge denied the company’s request for a preliminary injunction, provides a perfect explanation of why waiting too long to seek an injunction in a non-compete lawsuit can backfire:

“The company waited almost six months after it found out that its former employee was working for a competitor to file a lawsuit.  They waited another month to file a brief in support of the injunction and another month after that to set a hearing on the injunction. When the Court set the hearing, they requested a delay of the hearing for another two months.

[The company’s] delay in seeking injunctive relief is fatal to their request for a preliminary injunction. To the extent they have suffered any harm as a result of the events underlying their claims, much of that harm will have already occurred due to the delay; the appropriate remedy is therefore damages. The delay exhibited by [the company] in seeking a preliminary injunction also casts doubt upon the supposed irreparability of the harm alleged.”

Thus, while the company could proceed with the case and attempt to recover damages caused by the employee’s competition in violation of his breach of the non-compete agreement, the company’s ability to obtain an order prohibiting the employee from competing while the case was being litigated had evaporated due to the company’s delay in asking for it.

Embarcadero Techs., Inc. v. Redgate Software, Inc., No. 1:17-cv-444-RP, 2017 U.S. Dist. LEXIS 191317, at *1 (W.D. Tex. 2017).

TexasBarToday_TopTen_Badge_VectorGraphicBOTTOM LINE: A company should act as soon as possible after finding out that a former employee may be violating his or her non-compete agreement if the company wants to prevent the employee from competing. The wait-and-see approach to obtaining an injunction can result in the forfeiture of that legal remedy. 

Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice Her practice includes commercial, intellectual property and employment litigation.  You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.

 

DOL Overtime Rules Blocked Nationwide by a Federal Court in Texas

usdepartmentoflaborLast week, the United States District Court for the Eastern District of Texas issued a decision enjoining the Department of Labor (DOL) from enforcing its new overtime rules. State of Nevada et al. v. U.S. Department of Labor et al., case number 16-cv-00731.

The new overtime rules were set to go into effect on December 1, 2016, causing many companies to scramble to adjust their compensation systems in compliance with the new minimum salary threshold for administrative, executive, and professional exemptions, which was going to jump from $23,660 per year to $47,476 per year on December 1st. 

The court’s injunction requested in early October in two parallel cases filed by business organizations and 20 states, enjoins the Department of Labor from enforcing the new overtime rules.  

Takeaway:  In light of this injunction, businesses who are not in compliance with the DOL new overtime rules, are not going to be in trouble come December 1, 2016.  However, since this is a temporary injunction, employers are not 100% in the clear, as the court may still enforce the rules when the final hearing  in the cases takes place.  Thus, the injunction grants a temporary reprieve, but companies should continue to monitor the situation, which may last anywhere from several months to several years.  

Bottom line is that the injunction will remain in effect until a final resolution of the merits is reached or there is further order of the court, the Fifth Circuit, or the United States Supreme Court. 

Leiza is a business and employment litigation attorney in Dallas, Texas. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

Fox Goes to War with Netflix Over Two Programming Executives Who Jumped Ship

160916165507-netflix-fox-logos-780x439In a move that suggests that Fox might be feeling the burn of Netflix competition, the network Goliath has recently sued the king of online streaming over hiring of its two programming executives.  In the lawsuit, Fox claims that Netflix induced these employees to breach their employment agreements with Fox and thus tortiously interfered with their contracts causing it irreparable harm. It alleges that the conduct was illegal since Neftlix knew about the employment agreements – in fact was warned by Fox about them –  but decided to poach the executives anyways.

Coming out swinging, Fox described Netflix’s actions in the complaint as follows:

Netflix is engaged in a brazen campaign to unlawfully target, recruit, and poach valuable Fox executives by illegally inducing them to break their employment contracts with Fox to work at Netflix.  This action is necessary to enforce Fox’s rights, to hold Netflix liable for its wrongful conduct, and to prevent Netflix from continuing such illegal conduct.

Fox did not sue the two executives, who are now working on drama programming development for Neftlix. However, it seeks injunctive relief against Netflix to restrain it from interfering with the executives’ employment agreements claiming that Netflix’s conduct caused it “great and irreparable harm, including loss of Fox’s ability to contract for a stable workforce, the disruption to Fox’s corporate planning, and the injury to Fox’s business reputation and goodwill.”  Thus, while the executives are not named as defendants in the lawsuit, should the court grant Fox’s injunction, the order will necessarily affect the executives’ employment with Netflix. 

Takeaway:  2016 has been the year of high-profile non-compete battles in several industries. Nike, Fitbit, Lyft, and now Fox, have all been involved in lawsuits arising out of departure of key employees who ended up working for a competitor. Given the uptick in such litigation, companies should approach the process of hiring from competitors with caution and conduct their factual and legal homework before extending offers to such hires.  

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Leiza litigates non-compete and trade secrets lawsuits in a variety of industries, and has advised hundreds of clients regarding non-compete and trade secret issues. If you need assistance with a non-compete or a trade secret misappropriation situation, contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108.

A Temporary Injunction Order Enforcing a Non-Compete Agreement in Texas Must Pass the Muster of Rule 683 or Face Dissolution

All temporary injunctions in Texas must comply with Rule 683 of Texas Rules of Civil Procedure, which requires every injunctive order to “set forth the reasons for its issuance; [] be specific in terms; [and] describe in reasonable detail and not by reference to the complaint or other document, the act or acts sought to be restrained.” A temporary injunction order that fails to meet these requirements is subject to being dissolved.

Within the last four months, at least three Texas Courts of Appeals dissolved temporary injunctions seeking to enforce non-competition agreements because they failed to comply with Rule 683.  Most recently, the First Court of Appeals in Lasser v. Amistco Separation Products, Inc. dissolved a temporary injunction order that sought to enforce contractual non-compete and non-solicitation obligations because the order was both not specific enough and overbroad. This opinion, along with Ramirez, et al. v. Ignite Holdings Ltd., et al. (see my prior post here), provide a good example of what language falls short of meeting Rule 683 requirements.

In Lasser, ACS Industries, LP hired Robert Lasser to work in sales. His employment contract contained a confidentiality and non-solicitation clause, which prohibited Lasser from copying or using for his personal benefit ACS’s “confidential information,” as defined in the employment contract. It also forbade Lasser from “directly or indirectly, or by action in concert with others, engage in the solicitation of sales of competing goods to customers of ACS” for a period of two years from the contract’s termination. ACS later sold its assets, including Lasser’s employment contract, to plaintiff, Amistco Separation Products. Lasser worked for Amistco for a year before leaving to work for a competitor.

A month after Lasser resigned, Amistco sued him for conversion (of confidential information), civil theft, and misappropriation of trade secrets. The company requested the trial court to issue a temporary and permanent injunction against Lasser ordering him to return the confidential information that he had downloaded prior to his departure, enjoining him from disclosing and using such information, and preventing him from soliciting customers.

The trial court granted Amistco’s application for temporary injunction and issued the following order:

It is . . . ORDERED Defendant Robert Lasser desist and refrain from the following:

a) [Lasser] is ordered to return to [Amistco], and to cease and desist from using, any of [Amistco’s] confidential information and trade secrets within 14 days or as otherwise agreed by counsel.

b) [Lasser] is restrained from directly or indirectly disclosing, copying or otherwise reproducing, or giving others access to any of [Amistco] confidential information and trade secrets.

c) [Lasser] is restrained from deleting any emails, texts, voice messages, instant messaging communications (to include without limitation, instant messages using Google Talk, AOL Instant Messenger, Yahoo Messenger, or any other instant messaging platform), or any other electronic files or communications from his personal or work computers, laptops, phones, electronic storage devices and/or any other electronic device, or from, damaging, selling or otherwise discarding his personal or work computers, laptops, phones, electronic storage devices and/or any other electronic device in [Lasser]’s possession.

d) [Lasser] is restrained from directly or indirectly soliciting any of [Amistco’s] customers.

In analyzing the trial court’s order, the Court of Appeals reiterated that a temporary injunction order must do two things to comply with Rule 683‘s specificity requirements: (1) it should inform the defendant of the acts he is restrained from doing, without calling on him for inferences or conclusions about which persons might well differ and without leaving anything for further hearing; and (2) it may not prohibit lawful activities.  The injunctive order in question failed to meet both of these mandates.

First, parts (a) and (b) of the order failed to “identify, define, explain, or otherwise describe” what constituted “confidential information” that Lasser was prohibited from disclosing. Thus, these provisions did not provide adequate notice to Lasser as to what conduct he was restrained from performing and left him to speculate what conduct might satisfy or violate the order.  Therefore, the Court of Appeals declared Parts (a) and (b) void.

The Court also found that Part (c) was impermissibly ovebroad under Rule 683 because it enjoined activities that Lasser had a legal right to perform, such as deleting electronic records and files unrelated to the subject of the lawsuit. Therefore, it vacated this provision.

Finally, the Court of Appeals ruled that Part (d) of the order, which restrained Lasser “from directly or indirectly soliciting any of [Amistco’s] customers” was also overbroad.  Whereas the non-solicitation clause in Lassiter’s contract prohibited him from engaging in solicitation of sales of competing goods to Amistco’s customers, the temporary injunction order enjoined Lasser from soliciting any sales to Amistco’s customers. Thus, the order precluded Lasser from engaging in lawful business of selling non-competing goods to Amistco’s customers. The Court declared this provision void as well and ordered the entire temporary injunction dissolved.

CONCLUSION: When preparing for a temporary injunction hearing, the party seeking an injunction and its attorneys should make sure that the proposed order that they would like the judge to sign is specific enough to give the other side a clear notice of what they can and cannot do once the order is entered.  At the very least, the order should define what constitutes “confidential information” or “trade secrets” that the party is seeking to protect. Sloppy and generic language can result in the injunction being void.

Furthermore, a temporary injunction order cannot prohibit lawful activities. In that regard, it should trail the language of the non-competition and non-solicitation agreement closely. While it is tempting to overreach and ask for more restrictions that the original agreement allowed (especially if the judge is willing to grant it), including such language in the order can result in its dissolution on appeal.

For more information regarding protection of trade secrets and enforcement of non-compete agreements in Texas, contact Leiza Dolghih.

Failure to Include a Trial Date In a Temporary Injunction Order to Enforce a Non-Competition Agreement Will Result in a Void Order

A while back I wrote a post regarding the Fifth Court of Appeals reversing a temporary injunction order because it had failed to describe specifically what trade secrets and proprietary information the company’s former employees were prohibited from releasing. Last week, the First Court of Appeals addressed another requirement for temporary injunction orders in Texas, which, if not met, renders such orders void.

The facts in Conlin, et al. v. Haun, et al., are quite prosaic.  Haun sued the Conlins for a violation of their non-compete agreements with the company in which Haun held a 51% interest. During the litigation, the parties reached an agreement regarding the temporary injunctive relief, and the Court signed an order titled “Agreed Temporary Injunction,” which enjoined the Conlins from competing with Haun’s company, and enjoined Haun from tampering with the company’s records and data. The order stated that it was effective “until the trial of this case, or further order of this Court.” The blank space, in which the trial setting date could be written, was not filled.

Several years later, the Conlins moved to dissolve the temporary injunction on several grounds, including an argument that it was void under the Texas Rule of Civil Procedure 683 because it failed to state the reasons for its issuance and set a date for trial. The trial court denied the Conlins’ motion, and they appealed.

On appeal, Haun conceded that the agreed temporary injunction order did not comply with the Rule 683, which, among other things, requires that “[e]very order granting a temporary injunction shall include an order setting the cause for trial on the merits with respect to the ultimate relief sought.”  However, he maintained that the Conlins were estopped from challenging the order because they had agreed to it.  The Court of Appeals rejected this argument and ordered that the Agreed Temporary Injunction be dissolved as void.

The Court explained that the procedural requirements of Rule 683 are “mandatory” and “an order granting a temporary injunction that does not meet them is subject to being declared void and dissolved.” Therefore, a party who agrees to a void order has agreed to nothing.

Both, the Fourth Court of Appeals in In Re Garza, 126 S.W.3d 268 (Tex. App.–San Antonio 2003, orig. proceeding) and the Fourteenth Court of Appeals in In re Corcoran,  343 S.W.3d 268, 269 (Tex. App.–Houston [14th Dist.] 2011, org. proceeding) have previously rendered similar decisions, finding that the failure of a temporary injunction order to include a specific trial setting resulted in such order being void.

CONCLUSION:  Even an agreed temporary injunction order must meet all of the requirements of Rule 683, or it will be void.  At the very least, as previously discussed, it must be specific as to what conduct or actions are prohibited, and must include a trial date. Any order that fails to meet these requirements can be reversed on appeal or dissolved by the trial court at any moment, leaving the party who applied for it, unprotected.

For more information regarding protection of trade secrets and enforcement of non-compete agreements in Texas, contact Leiza Dolghih.