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Delayed Request for Preliminary Injunction to Enforce Non-Compete Agreement Denied in Alabama

In a January 21, 2011 opinion and order, a federal district court in Alabama denied a request for a preliminary injunction from clothing manufacturers Fruit of the Loom, Inc. and Russell Brands, LLC, seeking to prohibit a former employee from continuing to work for a competitor. (Fruit of the Loom, Inc. and Russell Brands, LLC v. Lonnie C. Bishop, Middle District of Alabama 2:2010cv01058). Plaintiffs requested the injunction pending their lawsuit to enforce a Kentucky non-compete agreement against the former employee. Although Kentucky courts generally enforce non-compete agreements where the restraint is no greater than reasonably necessary, this case demonstrates the practical difficulties of enforcement. Even in cases where an employer is successful in an action to enforce a non-compete agreement, the benefit of the agreement can be substantially eroded where a former employee is not immediately prohibited from working for the employer’s competitor.

The court in the Fruit of the Loom, Inc. case found that Plaintiffs failed to show a “substantial likelihood of success on the merits” of their claim that the non-compete agreement was enforceable, or that Plaintiffs would suffer “irreparable injury” if the injunction were not granted. Defendant began working for Russell Brands LLC (owned by Fruit of the Loom, Inc.) in July 1993, and voluntarily resigned to take a job with their competitor, Gildan Activewear Charleston, Inc. Defendant held similar positions with Russell Brands and Gildan Activewear as a distribution center manager. Approximately four months before his resignation, Defendant signed a non-compete agreement with Russell Brands. (Under Kentucky law, non-compete agreements signed by current employees are enforceable even absent additional consideration). The agreement stated that for a period of 12 months following the termination of his employment, Defendant would not “work or provide services for a Competitor…in an area, position or capacity in which you gained particular knowledge or experience during your employ with [Russell Brands], involving the sale, design, or manufacture of Competitive Products…”.

The Parties agreed that Defendant was employed “in an area, position or capacity” with his new employer “in which [he] gained particular knowledge or experience” from his former employer. The court doubted, however, that a reasonable fact-finder would view Defendant’s work in the distribution centers as involving the “sale” of products. Based on this interpretation, the court concluded that Plaintiffs did not show a “substantial likelihood of success on the merits” of their case to enforce the non-compete agreement.

The court also held that Plaintiffs did not meet their burden of showing that they would suffer “irreparable injury” if the injunction was not granted. The court noted that Plaintiffs had presented no evidence that their business interests had been harmed during Defendant’s two month tenure with the competing company. Plaintiffs also failed to identify any specific information that Defendant may not have already shared with the competing company, and that would be protected by the injunction. The court also noted that there was no evidence of loss of customers or goodwill as a result of Defendant’s employment with Plaintiffs’ competitor. Finally, the court found that there was no reason why monetary damages would not sufficiently compensate Plaintiffs should they be successful in the litigation to enforce the non-compete agreement.

In addition to the above reasons for denying the injunction, the court found that forcing Defendant to quit his job while the lawsuit was pending would place a significant hardship on him and his family, “especially considering how long civil lawsuits generally take to resolve in the federal court system.” By comparison, the court felt that denying the injunction would not impose a similar hardship on Plaintiffs, or otherwise be adverse to the public interest.