Violating a Court Order barring competition
A recent decision from the Third Circuit illustrates the price an employee can pay for violating a temporary restraining order precluding competition with a former employer.
In the fall of 2006, a federal district court in Pennsylvania granted the employer's motion for a temporary restraining order pending a hearing on the employer's motion for preliminary injunction. Several months later, the district court granted the motion for preliminary injunction. Applying Colorado law in accordance with the choice of law provision in the employee's employment agreement, the court found that the employee's non-compete was enforceable because the non-compete fell within two of the exceptions to Colorado's general rule barring enforcement of non-competes. The court found that the employee's agreement was a "contract for the protection of trade secrets" and that the employee was an executive or manager.
In its Order granting the motion for preliminary injunction, the court also found that, despite its entry of a temporary restraining order several months earlier, the employee had performed services for a "handful" of former clients. Later, in an unreported order, the district court found the employee in contempt and awarded the employer over $130,000 in attorneys fees and over $180,000 in lost revenue.
In a decision issued earlier this month, the Third Circuit in AMG National Trust Bank v. Ries was faced with the employee's appeal of the order granting the preliminary injunction and the order imposing sanctions. The Third Circuit affirmed the award of the preliminary injunction with little hesitation, but the sanctions presented a more difficult issue. The Third Circuit ultimately affirmed the award of attorneys fees but remanded the issue of lost revenue with instructions that the district court reconsider its order after a final determination of the merits of the case.
Even though the employee won a minor victory in the Third Circuit when the court ruled that the award of lost revenue should be reconsidered, the Third Circuit decision provides a valuable lesson for employees faced with a temporary restraining order. In AMG National Bank, it appears as if the employee only performed services for a few former clients who contacted him. Nonetheless, the employee was held in contempt and damages were awarded against him. Any employee, or employer for that matter, needs to understand and comply with any order issued by a court considering a non-compete. Damages can and will be awarded for the violation of a court order. In addition, an employee's violation of a court order will cast the employee in a negative light, damage the employee's credibility and lead to the enforcement of the disputed non-compete.
