Travelhost, Inc., produces magazines and other publications designed to help travelers. Over the course of the last several years, a number of employees, each of whom had signed a non-compete agreement, left the company and began working for its competitors.
Travelhost sued several of the ex-employees in the U.S. District Court for the Northern District of Texas for alleged violations of its non-compete agreements and achieved varying results. One defendant had stopped competing by the time judgment was entered and had departed the relevant territory. With only four months of the non-compete period left when Travelhost’s motion for entry of a preliminary injunction was decided, Chief Judge Fitzwater ruled that if competition resumed injunctive relief would be inappropriate and a compensatory award would suffice.
In an action against a different ex-employee, Senior Judge Fish initially denied Travelhost’s motion for a preliminary injunction — since the two-year non-compete period had run out before judgment was entered — but then, on reconsideration, “equitably extended” the agreement and granted the motion because of the defendant’s “continuous and persistent” violations of the covenant. For the same reason, Judge Lynn also equitably extended the agreements signed by five employees.
In the case of the former employee who no longer competed with Travelhost and had moved away, the company argued that irreparable harm should be presumed in the instance “of a continued breach of a non-competition agreement by a highly trained employee.” Chief Judge Fitzwater agreed that there is such a presumption but held that it is rebuttable and had been rebutted. The ex-employee started, but then sold, a competing business and left Travelhost’s environs. Even if her violations were to resume, the judge said in a ruling late last year, monetary damages were calculable because such an abbreviated portion of the non-compete period had not expired. Travelhost, Inc. v. Figg, Civ. Action No. 3:11-cv-0455-D (N.D. Tex., Nov. 22, 2011).
This past February, Senior Judge Fish decided that Travelhost’s motion for a preliminary injunction, against a different ex-employee whose two-year non-compete period expired a week before the judge ruled, was moot. Travelhost moved for reconsideration and showed that the ex-employee had been continuously publishing a new magazine within the designated territory and was targeting Travelhost’s markets, readers and distribution channels. Further, many of the advertisers were the same or similar. The injunction motion was filed more than four months before the non-competition covenant expired.
But for the ex-employee’s devil-may-care attitude, the reconsideration motion might have been denied. However, when Travelhost sent the ex-employee a cease and desist letter promptly after verifying that he was competing, he never responded but continued competing. After suit was filed, he kept ducking service of process until, eventually, the only recourse was both to leave the complaint at, and to mail it to, his residence. He didn’t respond until Travelhost moved for entry of an order of default. Then, he asked for and received two extensions of time to plead before finally answering. He failed to produce requested documents until he was served with a motion to compel and for sanctions, and he never replied to Travelhost’s motion to reconsider denial of a preliminary injunction.
In June 2012, Judge Fish granted reconsideration and said he would enter a preliminary injunction. According to the court, the ex-employee “had been continuously and persistently involved in the publication of the competitor publication. . . . [He] directly competed against Travelhost . . . while he still was under contract . . . . As a result, it is only fair that this court use its equitable power to extend the term of the non-compete agreement for an additional two years.” Travelhost, Inc. v. Modglin, Civ. Ac. No. 3:11-cv-0456-G (N.D. Tex., Feb. 29 and June 6, 2012). In still another case, Travelhost, Inc. v. Brady, Civ. Ac. No. 3:11-cv-454-M-BK (N.D. Tex., Feb. 17, 2012), Judge Lynn equitably extended the covenants of five ex-employees for two years.
Among the circumstances that have persuaded judges to exercise their discretion to equitably extend the duration of a non-competition covenant are the following:
- The applicable terms of the agreement (for example, an express provision — although not in Travelhost’s covenants — dealing with extension of the non-compete period if the employee violates the covenant during that period);
- The employer’s diligence in seeking judicial, and then injunctive, relief after learning the requisite facts;
- The egregious nature of the ex-employee’s violation and its continuation over an extended period (in other words, deprivation of the employer’s “benefit of the bargain”); and
- Delays not primarily attributable to the employer but, rather, caused by the ex-employee and/or the result of a prolonged litigation process.