Eleventh Circuit Decision Weakens Injunctive Enforcement of Restrictive Covenants
September 23, 2015
Last month, in Transunion Risk and Alt. Data Sols., Inc., v. MacLachlan, the Eleventh Circuit held that the district court should have considered hardship to an employee when it enforced a restrictive covenant in an employment contract. This holding limits the effect of a Florida statute favorable to employers in disputes over non-competition agreements when an employer seeks an injunction against a former employee in the courts of the Eleventh Circuit.
Plaintiff TRADS hired defendant MacLachlan after buying out his former employer. As a condition of his employment, TRADS required MacLachlan to sign a non-competition agreement. Later that year, MacLachlan took a job with a competitor and TRADS sued to enjoin him. The district court granted TRADS’s motion, and MacLachlan appealed.
On appeal, two legal authorities appeared to be in tension. On one hand, Florida Code § 542.335(g) provides that courts, “[i]n determining the enforceability of a restrictive covenant . . . [s]hall not consider any individualized economic or other hardship that might be caused to the person against whom enforcement is sought.” On the other hand, the Eleventh Circuit has held that Federal Rule of Civil Procedure 65 requires a court presented with a motion for a preliminary injunction to consider whether “the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party,” among other factors. Transunion, slip op. at 5 (quoting Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (en banc) (per curiam)).
The district court had concluded that the Florida statute required the court not to consider hardship to MacLachlan in ruling on the injunction. The Eleventh Circuit panel reversed the district court on that issue, emphasizing that the Florida statute applied by its own terms only to “determining the enforceability” of MacLachlan’s non-competition agreement (emphasis added). The district court had already decided the non-competition agreement was enforceable, so the court erred when it failed to consider, in the context of the injunction (rather than the enforceability of the agreement), whether the restrictive covenant harmed MacLachlan. The Eleventh Circuit vacated the injunction and remanded the case to the district court so that the district court could reweigh the elements laid out in Siegel.
Based on this ruling, employers should consider the effect that seeking an injunction in federal court, rather than state court, may have on their chances of success. Other federal courts’ application of Federal Rule of Civil Procedure 65 in the context of non-competition agreements would likely be similar to that of the Eleventh Circuit.
Transunion Risk and Alt. Data Sols., Inc., v. MacLachlan, No. 9:14-cv-81485-KAM (11th Cir. Aug. 27, 2015), available at http://1.usa.gov/1JdpsVF.