Employers in the Second Circuit are thankful for a recent non-compete summary order in which the Court found that an employee’s challenge of his non-compete agreement by way of a preliminary injunction motion failed because he failed to show irreparable injury.
Specifically, the Court found that an employee’s potential loss of income does not qualify as an irreparable injury in determining whether to invalidate a non-compete agreement and issue injunctive relief. In sum, in Hyde v. KLS Professional Advisors Group, the Second Circuit vacated a preliminary injunction issued by a New York federal district court, and in doing so, provided noteworthy insight on what constitutes irreparable injury with respect to the challenges by employees of non-compete agreements in the Second Circuit.
The facts in this case are fairly straightforward. Bruce Hyde (“Hyde”) resigned from KLS Professional Advisors Group (“KLS”), and he then filed suit and obtained a preliminary injunction preventing the enforcement of the restrictive covenants that Hyde had signed at the beginning of his employment with KLS. The covenants prohibited Hyde from contacting any of the firm’s past, present, or future clients for three years following his departure from KLS.
In reviewing the district court’s grant of a preliminary injunction, the Second Circuit reversed the preliminary injunction granted by the district court, finding that Hyde had clearly failed to show irreparable harm. According to the Second Circuit, irreparable harm was the “single most important prerequisite for the issuance of a preliminary injunction.” Fiaveley Transportation Malmo AB v. Wabtec Corp, 559 F.3d 110, 118 (2nd Cir. 2009).
According to the Court, prior to this case, the Second Circuit had yet to directly address the question of irreparable harm in the context of a challenge by an employee of his non-compete agreement. The reasoned, however, that in both the Supreme Court’s opinion in Sampson v. Murray, 415 US 61 (1974), and the Second Circuit’s opinion in Savage v. Gorski, 850 F.2d 64 (2d Cir. 1988), the courts denied requests for injunctions by government employees who had sought injunctions to keep or extend the jobs. Based on these cases, the Court reasoned, in what must have been a turkey of a decision for Hyde, that loss of employment and any difficulties arising therein do not constitute irreparable injury. Therefore, Hyde’s alleged showing that his restrictive covenant inhibited his ability to find a new job was insufficient to satisfy the irreparable harm requirement. The Court reasoned that “difficulty in obtaining a job is undoubtedly an injury, but it is not an irreparable one” as any harm suffered could be adequately compensated with monetary damages at trial.
Hyde also argued that his restrictive covenanst caused him irreparable harm through a loss of client relationships. The Court, however, quickly rejected that argument given that “Hyde had signed multiple agreements in which he acknowledged that KLS’s client base was proprietary and belonged to the firm.” Furthermore, even if the Court were to assume that Hyde had a legally protected interest in his client list, he had failed to demonstrate that losses related to his client list could not be remedied with monetary damages.
The Second Circuit’s ruling may be helpful to employers seeking to enforce non-compete agreements against their former employees and also provide them with helpful reasoning should former employees challenge their non-compete agreements.