Establishing Irreparable Harm in Non-Compete Cases
When an employer seeks a temporary restraining order (“TRO”) or temporary injunction in a Tennessee federal court against a former employee, or another person or entity with whom it had a non-compete agreement, it must show that irreparable harm will result if the TRO or injunction is not granted.
(For purposes of this post, a non-compete agreement refers to an agreement that prohibits competition, use of confidential information, or solicitation of customers.)
To obtain a TRO or temporary injunction, a federal district court in Tennessee must consider four factors:
The plaintiff’s likelihood of success on the merits
Whether the plaintiff will suffer irreparable harm if relief is not granted
Whether substantial harm will result if relief is granted
The effect of injunctive relief on the public interest
The irreparable harm factor is indispensable. While a district court may grant a TRO or temporary injunction even where the plaintiff has not shown that it is substantially probable they will ultimately win on the merits, the court must make specific findings that the plaintiff will suffer irreparable injury.
So, what is considered irreparable injury by Tennessee federal courts? An injury is irreparable if it cannot be compensated by money damages.
In non-compete cases, a former employer or business cannot be compensated for lost revenues:
From customers and contracts it cannot prove it lost
From confidential information used by others to gain customers, sales, or profits
From lost customer goodwill
When someone breaches a non-compete agreement, the injured party often cannot quantify its damages. If it cannot quantify them, it cannot prove them and recover them. Thus, without injunctive relief, the plaintiff will suffer irreparable injury.
As a general rule, Tennessee federal courts recognize that irreparable harm occurs when a non-competition agreement is violated. In fact, they have recognized that when a non-compete agreement is breached, irreparable injury will usually result.
Below are summaries of two instructive cases where former employees had signed non-compete agreements with their former employers.
Ever-Seal, Inc. v. Halferty (M.D. Tenn. 2022) - Facts:
The defendant, a former employee, worked for his employer for about a year and a half before being terminated
He was a salesman who was promoted to sales manager
He had access to, and learned, his employer’s marketing and growth plans, sales methods, customers, prospective customers, and confidential processes for sealing wood and concrete
He communicated directly with the employer’s customers while employed
After termination, he began offering identical services and even submitted bids on the same projects as his former employer
Held: The district court found that a TRO was appropriate and that the employer had proven it would suffer irreparable harm if the defendant was not enjoined. The irreparable injury was the loss of business and customer relationships.
F.S. Sperry Company, Inc. v. Schopman (E.D. Tenn. 2018) - Facts:
The plaintiff was a refractory contractor, and the defendants were a former branch manager, sales manager, and construction manager
The defendants simultaneously resigned and started a competing business
While employed, they had access to confidential information, including customer lists, pricing data, and internal cost structures
When they left, they took confidential information and began contacting customers and underbidding the plaintiff
Held: The court granted injunctive relief, finding irreparable injury. It stated that “use of another company’s proprietary information can be devastating” and that money damages cannot adequately compensate for this harm.
These cases reflect this firm’s experience in handling non-compete cases: irreparable injury is not usually too difficult to prove. Still, no lawyer seeking injunctive relief should take the requirement lightly.