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Employer can’t prevent former general manager from working for competitor despite noncompete agreement

A worldwide supplier of musical and audio products failed to persuade a federal judge in Mississippi that it was entitled to enjoin a former general manager from working for a competitor in California, allegedly in violation of the manager’s noncompete agreement (Peavey Electronics Corp v Pinske, no 4:10CV69TSL-LRA). Not only did the former employer fail to establish the reasonableness of the noncompete covenant in general or as it applied to the manager’s employment with the competitor, it failed to show that the manager’s employment violated the covenant or that the employer would suffer irreparable harm if the injunction was not granted.

After his employment in Mississippi ended, the manager moved to California and obtained a job with a “competitor.” When his former employer moved to enjoin the manager from working for the California company, the manager argued that the court was precluded from considering the motion because the competitor, his new employer, was a “required party” under Rule 19 and it had not been joined in the lawsuit. Dispensing with this argument, the court determined that the manager failed to show that his new employer’s absence from the lawsuit would affect the court’s ability to grant complete relief to the parties already in the case — the manager and his former employer. The noncompete agreement would either be enforced or it wouldn’t be enforced, the court stated, and the fact that the new employer may have an interest that might be impaired by the lawsuit’s outcome did not make it a necessary party under Rule 19.

Also rejected was the manager’s argument that the court should abstain from hearing the lawsuit because the manager and his new employer had already filed an action in a California state court against the former employer seeking to have the noncompete agreement declared void and unenforceable. A federal district court may in “extraordinary and narrow circumstances” abstain from exercising its jurisdiction, the court recognized, however, it declared that this case did not warrant such abstention. Although avoidance of piecemeal litigation is a factor to be considered in making that determination, the “mere prevention of duplicative litigation” is not, the court stated. Further, although the California suit was filed first, neither case had progressed much, if any, beyond the other, a factor also weighing against abstention.

Turning to the employer’s motion for a preliminary injunction, the court determined there was no evidence that the two companies have competed for customers during the six months that the manager had been working for the new employer. Moreover, there was testimony that while the two companies had some products in common, they were not competitors in any legitimate sense of that term. The former employer also failed to identify any harm that it suffered during the manager’s employment with the new employer, or that it would likely suffer future harm as a result of the manager’s continued employment there. Finally, the employer failed to show that its former employee had attempted to lure clients away from it, that it had lost any clients, or that it was in serious danger of losing clients. The employer argued that it may not know for months, or even years, whether the manager’s employment with its competitor has caused any harm; however, the court stated it was not enough to show that it could possibly lose business, it must show that it will likely suffer irreparable harm if the injunction is not granted. The employer failed to make this showing.