On December 18, 2012, the United States District Court for the Western District of Tennessee entered an Order granting an employer’s application for a preliminary injunction preventing its former employees from soliciting the employer’s customers. The Order is an excellent example of issues employers should focus on when arguing for the enforcement of non-compete agreements at the preliminary injunction stage.
In Smith & Nephew, Inc. v. Northwest Ortho Plus, Inc., et al., Docket No. 2:12-cv-02476, the employer claimed its former employees violated their non-compete agreements by diverting the employer’s customers to its direct competitors. The employer sought a preliminary injunction prohibiting the employees from breaching their non-compete agreements pending the resolution of the case at trial.
In order to prevail on its petition for a preliminary injunction, the employer had to prove: (1) it had a strong likelihood of proving the non-compete agreement should be enforced; (2) it would suffer irreparable harm if the non-compete agreement was not enforced pending trial; (3) third parties would not be harmed by enforcement of the non-compete agreement; and (4) the public interest would be served by enforcing the non-compete agreement pending trial.
In this case, the employer proved the final three factors by showing (1) it suffered irreparable harm when it lost customer goodwill because customer goodwill is difficult to calculate; (2) consumers of medical devices would not suffer because they could continue to purchase products from the plaintiff; and (3) there is a public interest in enforcing contracts as written.
As to the first factor, the employer showed there is a strong likelihood it would prevail in enforcing the non-compete agreement. First, the agreement protects the employer’s legitimate business interest by preventing the former employees from gaining an unfair advantage in future competition. Second, the agreement is reasonable because it resulted in little, if any hardship to the former employees and the public. Third, the agreement imposes time and territorial limits that are no greater than necessary to protect the employer’s legitimate business interest.
Employers seeking to enforce non-compete agreements should review this order. It provides a great example of how to argue a non-compete agreement at the preliminary injunction stage and applies the leading Tennessee non-compete cases in a ruling favorable to the employer.
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