Florida Business Litigation Lawyer Blog
When a former employer seeks an injunction to enforce a non-compete or non-solicitation agreement, it must prove that it will suffer irreparable harm without entry of an injunction. A party seeking to enforce a non-solicitation provision by injunction does not need to prove that defendant’s specific activities will cause irreparable injury, rather the statute provides that ‘[t]he violation of an enforceable restrictive covenant creates a presumption of irreparable injury to the person seeking enforcement of a restrictive covenant.’” America II Electronics, Inc. v. Smith, 830 So.2d 906 (Fla. 2d DCA 2002); Section 542.335(1)(j), Florida Statutes. The burden then shifts to the former employee to prove that that there is no irreparable harm. Proof of a former employer’s known financial losses does not necessarily rebut the statutory presumption when the former employee’s breach also damaged the former employer’s longstanding relationships with customers and the protection of its confidential client information. Peter Mavrick is a Fort Lauderdale non-compete attorney, and also advocates for clients in Miami, Boca Raton, and Palm Beach, Florida. Mavrick Law Firm represents clients in breach of contract litigation, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, and other legal disputes in federal and state courts and in arbitration.
An example of this occurred in the case of Variable Annuity Life Ins. Co. v. Hausinger, 927 So. 2d 243 (Fla. 2d DCA 2006). Variable Annuity Life Insurance Co. (VALIC) employed Jeffrey Hausinger (Hausinger) to sell annuity products to Hillsborough County school system employees. Hausinger entered an agreement with a non-solicitation provision that prohibited him from directly or indirectly soliciting any customers assigned to him within one year before his departure, and a confidentiality provision that prohibited him from disclosing trade secrets, including customer identities and account information, at any time after his termination, and not to disclose or use any confidential and proprietary information for a period of two years after termination.
After Hausinger left his employment with VALIC, he went to work with Merrill Lynch. After Hausinger’s resignation, VALIC discovered that he was soliciting VALIC customers on behalf of Merrill Lynch. VALIC also discovered that during his employment with VALIC, Hausinger downloaded confidential customer information and trade secrets from his VALIC laptop onto a portable flash drive and brought the information with him to Merrill Lynch. VALIC demanded that Hausinger return the information. After VALIC’s demand, Hausinger returned the flash drive and returned over three hundred client files, confidential paperwork, and VALIC forms.
VALIC then discovered that Hausinger had been soliciting certain “premium” clients who had large sums of money to move into a Merrill Lynch account. VALIC ultimately identified at least seven former clients who moved their accounts over to Merrill Lynch, which consisted of over a million dollars in combined assets. VALIC filed a lawsuit against Hausinger and immediately moved for preliminary injunction. VALIC contended that Hausinger violated his non-solicitation agreement and that VALIC suffered and would continue to suffer irreparable injury from Hausinger’s breach.
The trial court acknowledged that Hausinger’s breach of the non-solicitation provision created the statutory presumption of irreparable injury to VALIC and that the burden then shifted to Hausinger to establish the absence of such injury. However, the trial court concluded that because VALIC presented evidence of the actual damages it suffered as to seven specific clients, that legal damages were sufficient to compensate VALIC, and therefore, it had not suffered irreparable harm. The trial court denied the motion for preliminary injunction. VALIC immediately appealed.
The appellate court found that the statutory presumption was misunderstood by the trial court. While money damages were ascertainable as to some clients that Hausinger admittedly solicited, the irreparable harm presumed under the statute included the potential damage to VALIC’s longstanding relationships with its customers and the protection of confidential client information.
The focus of preliminary injunctive relief is on maintaining long standing relationships and preserving the goodwill of a company built up over the course of years of doing business….Plaintiff’s [sic] argument that there is no irreparable harm because Plaintiff’s injuries, if any, are subject to a monetary judgment, is equally without merit and has been rejected by other courts, where, as here, there is a statutory presumption of irreparable harm.
North American Products Corp. v. Moore, 196 F.Supp.2d 1217 (M.D. Fla. 2002). North American Products cited Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hagerty, 808 F.Supp. 1555 (S.D.Fla.1992), which emphasized the presumption of harm in a case that involved breach of a non-competition agreement by copying sensitive information from an employer’s computer and soliciting from the former employer’s clientele, where it stated:
Florida courts have repeatedly held that injunctive relief is appropriate where customer lists are involved. In Carnahan v. Alexander Proudfoot Co., 581 So.2d 184 (Fla. 4th Dist.Ct.App.1991), the court found that even if irreparable injury was not presumed, copying computer disks and soliciting clients would cause irreparable harm. Under the current facts and statute, however, irreparable injury actually is presumed. Moreover, the Florida Supreme Court has held repeatedly that where a Defendant has breached a covenant not to compete “[t]he Court may award damages … but the normal remedy is to grant an injunction. This is so because of the inherently difficult task of determining just what damage is actually caused by the employee’s breach of the agreement.” Miller Mechanical, Inc. v. Ruth, 300 So.2d 11 (Fla.1974).
The appellate court concluded that the trial court was correctly held that VALIC established a prima facie case for breach of the non-solicitation provision and that irreparable injury was presumed, but erred in finding that Hausinger rebutted that presumption through VALIC’s demonstration of its known financial losses. Because the trial court erred as a matter of law in its application of the statutory presumption of irreparable harm the appellate court reversed the denial of the motion for preliminary injunction.
Peter Mavrick is a Fort Lauderdale non-compete lawyer who also practices non-compete litigation in Palm Beach, Boca Raton, and Miami. This article does not serve as a substitute for legal advice tailored to a particular situation.