How Texas Courts Evaluate Applications for TRO in Non-Compete Lawsuits

Texas Noncompete contracts

Texas Noncompete agreements

Lawsuit over noncompete contracts are on the rise in Texas.  It is not unusual for an application for a TRO to be filed in conjunction with a non-compete lawsuit.   While Non-compete clauses are disfavored as a restraint on business in Texas, many state courts routinely uphold such clauses.  Until they are involved in a lawsuit, many workers are not aware that they are a party to a noncompete. The terms of a non-compete agreement can be found in routine enrollment documents that have titles such as Confidentiality, Intellectual Property, Non-Solicitation, and Non-Competition Agreement.  Non-compete agreements can also be found in stock plans and Restricted Stock Unit Agreement (“RSU Agreement”).

What courts look for in TRO applications

Many of our clients are automatically served with a motion for Temporary Restraining Order (TRO) after a noncompete lawsuit is filed against them.  What companies do not realize is that they carry the burden in establishing the basis for the TRO.

The party asking the court to issue a TRO must show the following:  (1) a substantial likelihood that the movant will prevail on the merits; (2) a substantial threat that the movant will suffer irreparable injury if the restraining order is not granted, that is, there is no adequate remedy at law, such as monetary damages; (3) the movant’s threatened injury outweighs the threatened harm to the party whom the movant seeks to enjoin; and (4) that granting the request for a temporary restraining order will not disserve the public interest.

1- Geographic scope of non-compete contract is a common challenge at the TRO hearing. The discussions that will take place before the court is whether the non-compete covenants at issue is unreasonably overbroad. IF the court finds for the plaintiff at this point, the analysis will go to the second prong.

2-Substantial threat of irreparble injury-One fact pattern we regularly see company that filed the lawsuit are in competition with the former employee and the employee’s new company or employer. The former employer argues that the former employee has access to confidential information regarding strategy and pricing while employed by Plaintiff. His subsequent employment with represents a significant threat to Plaintiff’s business.

3- Balance of harms-A TRO usually retrains a former employee and his/her new employer from work.  The Courts are sensitive to the hardship associated with enjoining the ex-employee from pursuing employment with the new employer, but have to be convinced that it represents a greater harm than that faced by the former employer. This is where zealous and effective legal representation come into play. In the past many TRO have been granted stopping former employee from getting employment, starting their new business venture, or working during the lawsuit.

4-Texas courts have held that enforcing reasonable non-compete agreements is within the public interest

These four elements should be kept in mind when entering into a non-compete agreement or evaluating the cost of non-compete lawsuits and the TRO.

 

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