Non-Compete Case: No Competition, No Preliminary Injunction

January 30, 2014

A federal district court in Massachusetts recently denied a corporation's motion to preliminarily enjoin its former employee from working at an alleged competitor corporation, as was prohibited in the employee's non-competition agreement. The court's decision turned on the fact that the plaintiff never proved that the defendant corporation was in fact a competitor in the marketplace, and thus did not satisfy the requirements that would warrant a preliminary injunction.

In Upromise, Inc. v. Peter Angus and Intuition Systems, Inc., Upromise, Inc. ("Upromise") specialized in servicing college savings plans, and was the former employer of Peter Angus ("Angus"). Angus left Upromise, and found a position with Intuition Systems, Inc. ("Intuition"), a company that focused on providing prepaid service of college savings plans. Upromise filed a lawsuit and a motion for preliminary injunction against Angus and Intuition, seeking (1) to enjoin Angus from accepting employment with Intuition, an alleged competitor of Upromise, for a period of one year pursuant to Angus' non-competition agreement with Upromise, or (2) specific performance of a negotiated settlement agreement to prevent Intuition from hiring Angus.

Generally, to obtain a preliminary injunction, a plaintiff must show: (1) a substantial likelihood of success on the merits of the underlying case; (2) a significant risk of irreparable harm to the plaintiff if the injunction is not granted; and (3) a balance of the hardships the parties will likely suffer that weighs in favor of the preliminary injunction. Here, the district court determined that Upromise failed to prove any of the requisite showings to justify a preliminary injunction.

Most significantly, Upromise did not demonstrate a likelihood of success on the merits of its case against the defendants relative to the non-compete agreement. The district court found that a legitimate question existed as to whether Upromise and Intuition were in fact competitors. While discussing the subtleties between providing prepaid college savings plans and servicing college savings plans, the court determined that the question is for a finder of fact to decide, and not to be determined at the preliminary injunction stage. Moreover, the court could not justify granting the injunction because Upromise did not demonstrate that it would suffer any irreparable harm from Angus's employment with Intuition.

Parker Scheer's Business Litigation practice group represents both employers seeking to enforce non-competition agreements and former employees who may be bound by such restrictive covenants. Contact us today for a free consultation.