Joseph G. Ballstaedt
801.365.1021
joe@snjlegal.com
After a Utah employee leaves his or her employer and breaches a non-compete agreement by working for a competitor, or he or she breaches a non-solicitation agreement by soliciting customers or employees of the former employer, can that employer stop the employee from continuing to engage in this conduct? Often times, yes. If the employer can show, among other things, that the employee’s conduct is causing irreparable harm, a judge may enter an order that requires the employee to immediately stop working for a competitor or engaging in conduct that violates a non-solicit. This order from the judge is called an injunction.
This article explains what an employer in Utah must prove at court to obtain an injunction against a former employee who breaches a non-compete or non-solicit. It also briefly discusses whether an employee can obtain a similar order that prevents an employer from attempting to enforce a non-compete, for instance, that may be unenforceable. An existing non-compete may cause the employee to be fired or to lose a job opportunity, even if the non-compete is ultimately unenforceable.
Elements Employer Must Show to Obtain an Injunction
In Utah, when an employer learns that a former employee is breaching a non-compete by engaging in a competing business, or soliciting the employer’s customers or employees in breach of a non-solicit, the employer can file a lawsuit against the employee and seek money damages against the employee for lost profits. Also, the employer can ask the court to stop the employee from continuing to compete or solicit through a court-ordered injunction.
There are two types of injunctions in Utah that an employer can obtain. First, an employer can obtain a temporary restraining order at the beginning of the lawsuit, which requires the employee to immediately stop engaging in the offending conduct. An employer can obtain a temporary restraining order even before the employee obtains notice from the court or the employer that the employer is seeking a temporary restraining order—or even that the employee has been sued at all. However, to do so, the employer must show that it will suffer immediate and irreparable injury, loss, or damage if the employee is given an opportunity to object to the injunction. Also, the employer must either show what efforts it made to give notice to the employee or the reasons the employer should not be required to give notice to the employee.
If a temporary restraining order is granted, it usually cannot last more than 14 days, and it automatically expires after those 14 days. Also, when the temporary restraining order is granted, the court sets a hearing as early as possible to determine whether the temporary restraining order should be converted to a preliminary injunction, which is essentially a temporary restraining order that remains in place during the lawsuit and until all the issues are resolved.
Alternatively, an employer can seek a preliminary injunction without initially obtaining a temporary restraining order. The elements required to obtain a temporary restraining order or a preliminary injunction, whether at the outset of the case or a few weeks into the case after the parties argue their positions, are the same. The employer in Utah must prove to the court the following elements.
- Irreparable Harm to the Employer. The employer must first show that it will suffer “irreparable harm” unless the injunction is granted. Irreparable harm may be loss of goodwill (relationships between the company and customers), misappropriation of trade secrets, or other similar harm.
- Greater Harm to the Employer. The employer must also show that the threatened injury to the employer through the breach of the non-compete or non-solicit outweighs whatever damage the proposed injunction might cause the employee.
- Not Adverse to the Public Interest. Next, the employer must prove that the order or injunction, if issued, would not be adverse to the public interest. This could be seen as a weighing of public policies in favor and against the injunction.
- Substantial Likelihood of Success. Finally, the employer must show that there is a substantial likelihood that it will win its claim for breach of the non-compete or non-solicit, or that there are serious issues on the merits of those claims, which should be the subject of later litigation. Although the success of the case will depend on whether the employer can show lost profits, the threat of lost profits may be sufficient since injunctions are preventative in nature. However, if the threat of lost profits is too speculative, the injunction may be denied.
Whether an Employee Can Obtain an Injunction or Other Quick Relief
Often, an employee in Utah leaves a job, has a job offer or other opportunity, but is uncertain about what will happen if he or she takes the job or opportunity and thereby breaches a non-compete or a non-solicit. Will the employer try to enforce the non-compete or non-solicit? If so, will a court determine that the non-compete or non-solicit is enforceable? If the employer has threatened to enforce the non-compete or non-solicit, can the employee obtain an injunction that prevents the employer from doing so? The employee may need an injunction and the assurance that comes from an injunction because, for instance, a prospective employer may be unwilling to hire the employer until a non-compete is off the table. The prospective employer would not want to get pulled into a lawsuit regarding the non-compete.
To obtain a temporary restraining order or preliminary injunction, the employee would have to show the four elements listed in the prior section: 1) that the employee would suffer irreparable harm, 2) that greater harm would result to the employee than to the employer, 3) that the injunction would not be adverse to the public interest, and 4) that the employee is likely to win the lawsuit.
Perhaps the most difficult element for an employee to prove would be irreparable harm. While there are some courts outside of Utah that suggest that loss of employment in this context could constitute irreparable harm, most courts around the country have concluded that losing a job is not irreparable harm because such a loss can be remedied by money damages. In other words, most courts have indicated or would likely conclude that an employee who loses income due to a non-compete improperly enforced by a former employer can be made entirely whole by receiving a money award against that prior employer in the amount of the lost income. Therefore, an injunction is not a proper remedy. While money damages cannot remedy every problem associated with lost income, the loss is not likely legally “irreparable.” It does not appear that any Utah court has addressed this issue, but it is likely that a Utah court, absent some type of extraordinary circumstances, would follow what most courts have determined.
Because an injunction would probably be hard to obtain, the best route would likely be to seek a quick decision from a judge regarding the enforceability of a non-compete, for instance. This relief is called a declaratory judgment. An employee who is bound to a non-compete could file a lawsuit seeking declaratory judgment to obtain clarification on whether the non-compete is enforceable, and a judge may be able to issue a ruling within two or three months of filing the lawsuit. However, whether a non-compete is enforceable is often a fact-sensitive inquiry that may require the parties to go to trail to resolve many facts. By the time a trial arrives, the one-year limit on a non-competes in Utah will likely have passed, and the employee would be able to compete again regardless of the trial’s outcome.
Assistance with Injunction Issues Related to Non-Competes and Non-Solicits
This article does not address every issue or all law related to injunctions or related to non-compete and non-solicit agreements. If you are an employer seeking to enforce such an agreement, or if you are an employee who has questions about such an agreement, I am happy to help. I offer a free consultation. My direct dial is 801-365-1021, and you can e-mail me at joe@snjlegal.com.
