Even If Employee Violates Non-Compete, Employer Must Still Prove “Irreparable Injury”

Employer employee non-competition agreement competitor
Employers have to prove they are harmed when a former employee goes to work for a competitor.

Employers frequently require employees to sign non-competition agreements.  Generally, those agreements are used to protect employers from the risk that training and information given to an employee can be used by a competitor.   But, an employee’s decision to work for a competitor does not mean that the employer will automatically win a law suit for violation of a non-competition agreement.  Instead, the employer is also required to show that it will suffer “irreparable injury” if the employee works for a competitor.  See Transunion Risk and Alt. Data Sol., Inc., v. Challa, No. 16-11878, 2017 WL 117128 (11th Cir. Jan. 12, 2017).

TransUnion Risk and Alternative Data Solutions, Inc. (“TRAD”) and its competitor IDI, Inc. work in the “data fusion” field — their products aggregate fragmented information about people, businesses and assets.  Challa worked for TRAD in the development of its data fusion software. He wrote code for the software and worked on integrating data into the software.  Challa signed a one-year non-competition agreement while working for TRADS.  Immediately, after leaving TRADS in 2014, he began working for its competitor, IDI.

TRADS sued Challa for violating the non-competition agreement and asked for a preliminary injunction to force him to stop work immediately.  The trial court and the Eleventh Circuit found that there was no question that Challa violated the non-competition agreement because he went to work for a competitor.

Even so, TRADS didn’t win.  To obtain a preliminary injunction, TRADS was required to prove that it would suffer “irreparable injury” if Challa worked for IDI.  The trial court and the Eleventh Circuit found insufficient evidence of such “irreparable injury.”  The decision relied upon several key facts.  First, the trial court believed Challa, who claimed that his job at IDI was hardware-centric, but that his job at TRADS had been software-focused.  Second, the data fusion industry is rapidly evolving, minimizing the usefulness of any proprietary knowledge that Challa possessed.  Finally, the court believed Challa when he claimed he would not reveal any of TRADs’ proprietary knowledge to IDI.

TRADS argued that “the mere possibility that Challa might at any point divulge confidential information” required a finding of irreparable injury.  But, the Eleventh Circuit disagreed. Harm is irreparable if it is “actual and imminent.”  But, TRADS’ argument would require a finding of irreparable injury even when the potential harm was prospective and wholly speculative.

Potentially, Transunion Risk is an outlier case, where a trial court made credibility determinations that benefited the employee.  Nevertheless, Transunion Risk also provides an important warning to employers.  Your former-employee’s presence at a competitor does not automatically mean that you can enforce a non-competition agreement.  Instead, you also need to produce substantial evidence of the harm that his/her presence at the competitor will cause.