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By: Daniel Turinsky, Evan D. Parness, and Britt C. Hamilton, DLA Piper LLP (US)
This article provides guidance on substantive and procedural considerations involved in pursuing temporary restraining orders (TROs) and preliminary injunctive relief to help protect employer trade secrets and enforce restrictive covenants against former employees.
FOR EMPLOYERS, RESTRICTIVE COVENANTS HAVE BECOME a vital tool for protecting confidential information, trade secrets, client goodwill, and other important business interests. Just as vital is knowing how to effectively protect those interests through litigation if necessary. Successfully enjoining restrictive covenant breaches or misappropriations of trade secrets (or both) requires a coherent litigation strategy and careful consideration of numerous procedural and substantive issues.
This article addresses the following considerations regarding TROs and preliminary injunctions in connection with restrictive covenants and trade secret misappropriation:
This article does not supply an exhaustive discussion of the similarities and differences between state laws with respect to the enforceability of restrictive covenants or protection of trade secrets. This article also does not comprehensively explore state law distinctions for drafting enforceable restrictive covenants or protecting employer trade secrets.
Strategies for Determining Whom to Sue and Where to Do It
Choosing Your Defendant(s)
The Former Employee
It perhaps goes without saying that your complaint should name the person you suspect has breached a restrictive covenant or misappropriated your trade secrets—the former employee. Review your records to ascertain the employee’s full name and last known address.
The New Employer
A frequent topic of debate in this area is whether to also name the new employer as a defendant. The answer hinges on a variety of factors, not all of which apply to every situation. In determining whether to sue the new employer in a restrictive covenant or trade secret litigation, you should consider the following issues:
Other Potential Defendants
While the former employee and his or her new employer may be the most likely defendants in a lawsuit involving restrictive covenant or trade secret misappropriation claims, they are hardly the only potential defendants.
Do you have reason to believe other former employees are participating or have helped the employee? Did your investigation turn up names of other individuals at the new employer who may be helping the former employee solicit your clients? Has the former employee already incorporated a new business that you should name as defendant (in addition to the former employee individually)? While less likely, what about a now-former client who breached its existing contract with you to follow the employee to his or her new business?
You may be able to exert additional pressure on the former employee by identifying third parties who have assisted in his or her wrongdoing.
Choosing Your Forum
Intertwined with the who question is the where question. Where do you sue and how do you decide? Sometimes making this determination is as simple as checking the agreement. Other times it may require research of state law and analysis of various practical, strategic considerations. Below are just a few of these considerations:
Insights into Whether and How to Seek Injunctive Relief (Including TROs and PIs)
Do not take lightly a decision to commence legal action against an employee, former employee, and/or a former employee’s new employer. If an employer has actual evidence, or a good-faith reason to believe, that an employee (or former employee) has violated restrictive covenants and/or commonlaw obligations that threaten the employer’s confidential information, client and employee relationships, or other legitimate business interests, the employer should strongly consider filing an action that includes a request for injunctive relief to put a stop to the harm or potential imminent harm to the employer.
Common Forms of Requested Injunctive Relief (TROs and PIs)
The most common forms of requested injunctive relief are TROs and PIs.
On a TRO application, the movant is seeking short-term temporary relief from a court until the court has an opportunity to consider an evidentiary record and a fuller opposition from the opposing party(ies). If the employer has hard evidence or a good-faith reason to believe that an employee has engaged in conduct that poses an imminent risk of misappropriation of confidential information, loss of key clients, or some other imminent harm to the business, the employer should seek a TRO as soon as practicable. A TRO application, which the movant files along with a complaint, will generally require a proposed order to show cause outlining the injunctive relief sought, a sworn emergency affidavit from a person with knowledge of the facts, and a supporting memorandum of law. The sworn affidavit should explain to the court how and why the employer faces an imminent risk of harm (e.g., the employer has evidence that the employee downloaded sensitive company files the day before he or she resigned) such that the court should temporarily enjoin the employee or another entity from engaging in certain conduct until the court holds a more fulsome PI hearing.
TRO applications in employment disputes are generally not made ex parte. That is, unless the employer can demonstrate that providing notice to the opposing party would lead to further irreparable harm, a movant generally must give the opposition reasonable notice of the movant’s intent to make a TRO application.
While TROs are generally intended to secure short-term temporary relief prior to any evidentiary hearings, PIs are typically sought to preserve a status quo based on a limited evidentiary record pending a full trial at the end of the case. That is, a PI enjoins a party from taking a particular action throughout the duration of the case until a full trial on the merits. Because lawsuits may last months (if not years), securing a PI is often critical to protecting the employer’s interests.
Like TROs, attorneys generally seek PIs by written application to the court. In fact, attorneys often seek PIs through the same initial application as a TRO. For instance, an employer might file a complaint accompanied by an application for a TRO and a PI, with the application supported by motion papers such as a memorandum of law, one or more sworn affidavits from witnesses with knowledge of relevant facts, and a proposed order to present to the court. A court presented with a TRO/PI application typically will issue an order granting or denying the relief requested in the TRO application and set a date for an in-court hearing on the PI application. In scheduling the PI hearing, the court also will likely set a briefing schedule under which the opposing party (here, the employee) may file a memorandum of law and proffer its own evidence in opposition to the employer’s application.
Successfully obtaining a PI generally requires that an employer satisfy several factors, such as a demonstration that it will likely succeed on the merits of its underlying claims and that it will suffer irreparable harm if the court were to deny its PI application. We discuss these and the other factors typically required for obtaining injunctive relief below.
Avoid Delays When Seeking TROs and PIs
An employer’s failure to promptly seek a TRO and/or PI could make it more difficult to demonstrate to a court that the employer faces a situation warranting emergency relief.2
To Seek or Not to Seek a TRO or PI?
Whether to seek a TRO or PI against a former employee involves both legal and practical considerations and may turn on the specific employee and the suspected misconduct. For example, say that an employer learns that a non-unique former employee with a covenant not to compete accepts employment with a direct competitor to work in a similar position, but there is no evidence that the employee has taken any of the employer’s confidential information or trade secrets. Should the employer still seek to enjoin the employee based on the covenant not to compete, and if so, will the employer succeed?
The answer to both questions depends on the facts and circumstances and the applicable law. Even without evidence of actual misappropriation of trade secrets or confidential information, the employer still may have one or more protectable interests warranting protection through an injunction preventing the employee from breaching the non-compete.
Employer’s Interest in Customer Goodwill and Relationships
In many jurisdictions an employer has a protectable interest in its customer goodwill and relationships. For instance, in Grp. Health Sols., Inc. v. Smith, 2011 N.Y. Misc. LEXIS 4402, at *14 (N.Y. Sup. Ct., N.Y. Cnty. Aug. 5, 2011), despite no evidence of misappropriation, the court denied defendant former employee’s motion to dismiss a breach of noncompete claim because of the employer’s “legitimate interest in protecting [its] relationships and goodwill.” The former employee had interacted with former employer’s customers during employment and then allegedly subsequently used these business relationships to compete with his former employer.3
Inevitable Disclosure Doctrine
Depending on the employee’s prior role and position, the employer may also have an interest in preventing him or her from misusing competitively valuable confidential information he or she did not take by, for example, downloading files or printing documents, but still possesses by virtue of having received or been exposed to such information. In several jurisdictions, the inevitable disclosure doctrine may allow for injunctive relief against a former employee whose acceptance of competing employment threatens disclosure of his or her former employer’s trade secrets, even though the employee did not actually misappropriate the employer’s trade secrets or confidential information.
For example, in Payment Alliance Int’l., Inc. v. Ferreira, 530 F. Supp. 2d 477, 482 (S.D.N.Y. 2007), the court enjoined a former executive from working for “a direct competitor” where the executive “possesse[d] detailed knowledge” of “non-public information” regarding the former employer’s “customers and marketing strategies [that] would undeniably be of value to one of its direct competitors.” The court explained that “even if [the former executive] acted with the best of intentions, he may unintentionally transmit information gained through his association with [his former employer] during his day to day contact with his new employer” and that “[the former executive’s] employment with [the new employer] creates the risk that disclosure of [the former employer’s] trade secrets is inevitable.”4 In IBM Corp. v. Papermaster, 2008 U.S. Dist. LEXIS 95516, at *25 (S.D.N.Y. Nov. 21, 2008), the court enforced a covenant not to compete where a former employee had access to “sensitive and confidential information through his work” concerning former employer’s “strategic plans, product development, technical recruitment, and long-term business opportunities.” The court found that the “likely inevitability of even inadvertent disclosure is sufficient to establish a real risk of irreparable harm to IBM.”5
In short, depending on the particular circumstances and applicable law, there may be multiple grounds on which an employer can obtain injunctive relief against a former employee for breaching a restrictive covenant even without evidence of a smoking gun.
Factors for Obtaining Injunctive Relief
As a general matter, to succeed on a TRO (or PI) application, the movant must demonstrate each of the following:
In federal court, the movant must also demonstrate that an injunction is in the public interest.6
At a hearing on a TRO/PI application, the assigned judge will generally give the movant and the opposing party each an opportunity to present their case. As addressed below, the movant must be prepared to articulate how it satisfies each of the TRO/PI factors.
Likelihood of Success on the Merits
Likelihood of success on the merits on a claim of breach of a restrictive covenant agreement generally hinges on whether the agreement at issue is enforceable. Each state has its own statutory or common law governing the enforceability of restrictive covenants. For example, in New York, courts will enforce restrictive covenants that (1) are reasonable in time and space, (2) protect legitimate interest(s) of the employer, (3) do not impose an undue hardship on the employee, and (4) are not injurious to the public.7 For misappropriation of trade secret or confidential information claims, an employer may demonstrate likelihood of success by, among other things, advising the court of the nature of the information that an employee has wrongfully retained, the steps the company took to preserve the confidentiality of such information, and how the employee has already used such information, or may use such information to harm the business.8
Irreparable Harm if the Court Does Not Grant Injunctive Relief
For the irreparable harm prong, the employer should demonstrate to the court that, should the employee’s conduct remain unchecked, the employer is in danger of serious harm to the employer’s business interests for which money damages are not sufficient. The employer’s restrictive covenant agreement with the employee may contain an acknowledgment from the employee that a breach or threatened breach would result in irreparable harm to the employer.
Case law in the jurisdiction in which the employer seeks injunctive relief should also provide helpful guidance. In New York, for example, violations of restrictive covenants that result in the misuse of confidential information or loss of client relationships or goodwill may satisfy the irreparable harm standard.9
Balance of Equities in the Movant’s Favor
When an employer seeks to enforce a restrictive covenant, courts will weigh the potential hardship to an employee should the court grant the requested injunctive relief against the harm to the employer if the court denies the injunctive relief. The restrictive covenant at issue may contain an acknowledgment from the employee agreeing not to contend hardship if the employer seeks to enforce the restrictive covenants, because, for example, the employee remains free to engage in certain business activities that will enable the employee to continue to earn a livelihood.
The movant should also look at precedent in the applicable jurisdiction. Courts in some jurisdictions have found that any hardship to an employee from enforcing the restrictive covenant agreement is ameliorated by the employee’s informed acceptance of such an outcome when he executed the agreement, and, ultimately, chose to violate it.10
Potential Outcomes and Implications
Standing on Success
If the company is successful on a TRO application, the court will enjoin the defendant(s) from engaging in certain conduct until the PI hearing, at which time the court may consider live witness testimony and additional documentary evidence. Depending on the court, the PI hearing could take place anywhere from a week to over a month after the date of issuance of the TRO. From the movant’s perspective, the longer the period of time between the TRO and PI hearing, the more leverage the movant may have to negotiate a settlement with the opposition.
Preliminary Injunction Hearing
Should the matter proceed to a PI hearing, the court may order expedited discovery prior to the hearing to enable the parties to more fully present their cases. Nevertheless, a PI hearing is not a full-blown trial, and the court generally will limit the parties’ presentations to determine whether the movant can satisfy the PI factors, which we discussed previously in this article.
Depending on the jurisdiction, the PI hearing typically involves a mix of presentation of evidence and legal argument. Evidence presented at a PI hearing generally takes the form of live testimony and documentary evidence such as witness affidavits or documents and communications related to the suspected breach. Should it elect (or be ordered) to present live testimony, an employer moving for a PI might call the following witnesses:
Whether to rest on written affidavits or present live testimony (and if so, which witnesses and on what subjects) will vary depending on the jurisdiction, court rules, the judge presiding over the case, and the nature of the evidence. For example, presenting live witness testimony may assist the court in understanding the context and importance of written evidence such as emails or documents that the employer submitted in its written application.
Regardless of whether or not it elects to present live testimony, an employer seeking a PI should be prepared to articulate how the requisite PI factors tilt in its favor and warrant injunctive relief. In particular, the movant should brush up on the relevant agreement and the restrictive covenants at issue and be prepared to demonstrate how the employer will be irreparably harmed (e.g., through misappropriation of trade secrets and/or confidential information and/or the loss of client goodwill) if the court does not grant the requested relief.
Effect of Obtaining a Preliminary Injunction
Should the movant succeed in obtaining a PI, the injunctive relief will remain in effect until a full-blown trial on the merits. In some jurisdictions, the trial may not begin for over a year from the date of the PI order. Moreover, the court’s order on a PI application may telegraph how the court is likely to rule were the case to proceed to trial. Accordingly, parties may look to resolve the matter following the PI order but prior to trial, often leaving the PI hearing as the final litigated part of the dispute. A movant’s success at the PI hearing often bodes well for these settlement discussions.
Dealing with Denial
Denial of TRO Application
If a court denies a TRO application, the employer may wish to press for a PI hearing to be scheduled as soon as possible, so as to mitigate any adverse effects of the employee’s ability to continue his or her contested actions prior to the PI hearing. Before doing so, the employer should consider whether expedited prehearing discovery would improve its chances of securing a PI; it may be the case that important documents or communications lie solely in possession of the departed employee and that obtaining such documents or communication would bolster the employer’s case at the PI hearing. And, of course, the employer should heed any guidance or remarks that the court made during the TRO hearing to possibly improve its chances at obtaining a PI.
Denial of PI
If a court denies a PI, the employer will have to weigh the costs and risks of trial against the benefits of a potential positive outcome following trial. The employer should typically push for an expedited trial date so that it can seek to obtain the requested injunctive relief before too much additional time passes. If the court’s order on the PI application expressly states or impliedly suggests that the court is denying injunctive relief because money damages could satisfy the harm at issue, if proven, then the employer may still have some leverage to seek a resolution short of trial.
Daniel Turinsky is a partner in the Employment group of DLA Piper LLP (US) and is based in the firm’s New York City office. His practice focuses on the representation of employers in litigation before federal and state courts, administrative agencies, and arbitration panels. His litigation experience encompasses a wide range of employmentrelated matters, including discrimination, harassment, and retaliation claims; wage and hour class and collective actions; disputes involving the enforcement of employment contracts, confidentiality agreements, and non-competition covenants; consumer class actions relating to employer pre-employment screening processes; and tort claims arising out of the employment relationship, such as fraud, breach of fiduciary duty, tortious interference, intentional infliction of emotional distress, and defamation. Evan D. Parness, a partner in the New York office of DLA Piper LLP (US), represents employers and senior executives in all aspects of employment-related litigation and disputes before federal and state courts, administrative agencies, and alternative dispute resolution bodies. His experience includes defense of claims of discrimination, retaliation, and harassment; disputes involving the enforcement of employment contracts and non-competition covenants; and tort claims arising out of the employment relationship, such as breach of fiduciary duty, unfair competition, and tortious interference. Evan also advises clients on a broad variety of employment-related matters, including terminations and other disciplinary actions, employment and separation agreements, investigations of alleged discrimination, harassment and other employee misconduct, employment policies and practices, and litigation avoidance. Britt C. Hamilton is an associate in DLA Piper’s New York office. He represents employers and senior executives in all aspects of employment-related litigation before federal and state courts, administrative agencies, arbitration panels, and other alternative dispute resolution bodies.
To find this article in Lexis Practice Advisor, follow this research path:
RESEARCH PATH: Labor & Employment > Non-competes and Trade Secret Protection > Restrictive Covenants > Practice Notes
For more detail on state law issues related to restrictive covenants, see
> NON-COMPETES AND TRADE SECRET PROTECTION STATE PRACTICE NOTES CHART
RESEARCH PATH: Labor & Employment > Noncompetes and Trade Secret Protection > Restrictive Covenants > Practice Notes
For a list of relevant state-law forms, see
> NON-COMPETES AND TRADE SECRET PROTECTION STATE EXPERT FORMS CHART
RESEARCH PATH: Labor & Employment > Noncompetes and Trade Secret Protection > Restrictive Covenants > Forms
For more information on seeking temporary restraining orders (TROs), see
> TEMPORARY RESTRAINING ORDERS: SEEKING A TRO (FEDERAL)
RESEARCH PATH: Civil Litigation > Pretrial Injunctive and Other Provisional Relief > Practice Notes
For more information on seeking preliminary injunctions (PIs), see
> PRELIMINARY INJUNCTIONS: SEEKING A PRELIMINARY INJUNCTION (FEDERAL)
For step-by-step guidance on seeking TROs and preliminary injunctive relief in federal court, see
> PRETRIAL INJUNCTIVE RELIEF: SEEKING A TEMPORARY RESTRAINING ORDER OR PRELIMINARY INJUNCTION CHECKLIST (FEDERAL)
RESEARCH PATH: Civil Litigation > Pretrial Injunctive and Other Provisional Relief > Checklists
For a discussion of how to oppose TROs and preliminary injunctive relief in federal court, see
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For information on each federal circuit court standard, see
> PRETRIAL INJUNCTIVE RELIEF STANDARDS (FEDERAL)
For information on protectable interests, see
> RESTRICTIVE COVENANT BASICS, INCLUDING ADEQUATE CONSIDERATION, PROTECTABLE INTERESTS, GEOGRAPHIC AND TIME RESTRICTIONS, AND PERMISSIBLE SCOPE
1. See, e.g., Guardian Fiberglass, Inc. v. Whit Davis Lumber Co., 509 F.3d 512, 515 (8th Cir. 2007) (“Arkansas courts will honor a choice of law provision, provided that the law selected is reasonably related to the transaction and does not violate a fundamental public policy of the state”) (internal quotation marks omitted); Outside Television, Inc. v. Murin, 977 F. Supp. 2d 1, 13–14 (D. Me. 2013) (noting Maine’s “strong presumption in favor of [employer’s] choice of forum and . . . forum selection clause” and enforcing forum selection clause where employer had “a non-trivial presence within Maine” and where former employee failed to show “that any public policy would be offended by enforcement of the forum selection clause”); Stryker Corp. v. Ridgeway, 2014 U.S. Dist. LEXIS 98455, at *5–6 (W.D. Mich. July 21, 2014) (applying Michigan law to enforce Michigan choice of law and forum provisions where former employer was “based in Michigan and Michigan has an interest in enforcing its employers’ non-compete agreements and forum selection clauses,” and because enforcement of forum selection clause would not be fundamentally contrary to public policy of Louisiana where former employee lived). 2. See, e.g., Southtech Orthopedics, Inc. v. Dingus, 428 F. Supp. 2d 410, 420 (E.D.N.C. 2006) (“[T]he six to nine week delay between plaintiff’s discovery of defendant’s competitive activities and its filing suit weighs against injunctive relief.”); Embarcadero Techs., Inc. v. Redgate Software, Inc., 2017 U.S. Dist. LEXIS 191317, at *14 (W.D. Tex. Nov. 20, 2017) (“If the harm Plaintiffs feared were indeed irreparable, it is unclear why they, knowing all of the primary facts forming the basis for their claims by April at the latest, filed the complaint on May 11, did not request a hearing or file a brief supporting their application for a preliminary injunction until June 12, and, once the Court set a hearing for July 25, requested that the hearing be moved to early September.”). See below for factors courts consider, including that movant would suffer irreparable harm in the absence of injunctive relief. The TRO or PI application may also include a request for expedited discovery so that the employer can quickly learn the full extent of the potential breaches and/or tortious conduct. 3. 2011 N.Y. Misc. LEXIS 4402, at *15. 4. 530 F. Supp. 2d at 482 (internal quotations omitted) 5. 2008 U.S. Dist. LEXIS 95516, at *34. But see DGM Servs., Inc. v. Figueroa, 2016 Tex. App. LEXIS 13808, at *14 (Tex. Ct. App. Dec. 29, 2016) (concluding “that the inevitable disclosure doctrine has not been adopted by Texas courts”). 6. See Winter v. Natural Res. Def. Council, Inc. 555 U.S. 7, 20–22 (2008). 7. See, e.g., BDO Seidman v. Hirshberg, 93 N.Y. 2d 382, 388–89 (1999) (partially enforcing non-compete). 8. See, e.g., Marcone APW, LLC v. Servall Co., 85 A.D.3d 1693 (N.Y. App. 4th Dept 2011) (determining that customer names, contacts, and business information was a trade secret that must be protected from misuse). 9. See, e.g., Second on Second Café v. Hing Sing Trading, 66 A.D.3d 255, 272–73 (N.Y. App. 1st Dept 2009) (holding that the loss of the goodwill of a viable, ongoing business can “constitute irreparable harm warranting the grant of preliminary injunctive relief”); FTI Consulting, Inc. v. PricewaterhouseCoopers LLP, 8 A.D.3d 145, 146 (N.Y. App. 1st Dept 2004) (finding breach of restrictive covenants constitutes irreparable harm where the loss of goodwill is not readily quantifiable); Chertoff Diamond & Co. v. Fitzmaurice, 234 A.D.2d 200, 203 (N.Y. App. 1st Dep’t 1996) (holding “it clearly shown that plaintiff would suffer irreparable harm should its clients terminate their relationships with it to use defendants’ services”); Alside Div. of Associated Materials Inc. v. Leclair, 295 A.D.2d 873, 874 (N.Y. App. 3d Dept 2002) (“[I]f defendants are permitted to compete unfairly by using plaintiff’s confidential and proprietary pricing information to underbid it, plaintiff will not only lose business, but will also suffer a dilution of the good will it has developed with its customers. Such a loss of customer good will can constitute irreparable harm for preliminary injunction purposes.”); Aon Risk Servs., N.E. v. Cusack, 2011 N.Y. Misc. LEXIS 6392, at *59 (Sup. Ct. N.Y. Cnty. Dec. 20, 2011) (stating that “under New York law, it is clear that the continuing violations of restrictive covenants that result in the loss of customer goodwill or proprietary information constitute irreparable harm, incapable of being measured monetarily at the time injunctive relief is requested”). 10. See DAR Assoc., Inc. v. Uniforce Services, Inc., 37 F. Supp.2d 192, 200 (E.D.N.Y. 1999); Jiffy Lube International, Inc. v. Weiss Bros. Inc., 834 F. Supp. 683, 693 (D.N.J. 1993) (“To the extent that the defendants suffer significant . . . damage from the granting of the preliminary injunction, this harm is a predictable consequence of their willful breach of contract and their misconduct. As such, it is not the type of harm from which we seek to protect a defendant . . . [and] is not a basis for denying a plaintiff the relief to which it is legally entitled.”).