PART FOUR
Enforcement of Restrictive Employment Provisions
In conjunction with provisions regarding competition, solicitation, and confidentiality, most restrictive employment agreements will include language regarding the enforcement of those provisions. Specifically, most agreements state that a representative agrees that, in the event the representative breaches the agreement, the former employer will have suffered “irreparable harm” and will be entitled to preliminary injunctive relief. Irreparable harm is a prerequisite for a court’s determination that the former employer is entitled to an injunction (or court order) against the former employee that prevents the employee from competing, soliciting clients or employees, and/or using any confidential information of the employer.
If a firm believes that a former representative may have violated one or more provisions of an employment agreement, it will often send what is known as a “cease and desist” letter demanding that the former employee immediately stop any activities prohibited by the agreement. Many times, either directly after sending such a letter or without even doing so, the firm will retain an attorney to seek a temporary restraining order in the appropriate local court.
A temporary restraining order (TRO) is an emergency remedy that an allegedly harmed party can seek to protect its interest and maintain the status quo. Due to the “emergency” nature of the requested legal relief, courts may (and usually do) issue TRO’s without hearing from the defending party (in this case the former employee). As indicated by its name, however, a TRO is not a permanent prohibition, and only remains in effect until such time as the court has an opportunity to hear from both parties regarding the next stage of the injunctive relief process, the preliminary injunction.
If the court grants a party’s request for preliminary injunctive relief, the injunction generally remains in effect through the remainder of the litigation, and it may be eliminated, altered, or extended into a permanent injunction. If the former firm is a FINRA member (i.e. a broker-dealer) and the former employee is an associated person (i.e. a registered representative) under FINRA Rules, then the parties are required to arbitrate their dispute through FINRA Dispute Resolution (arbitration). This means that the firm will have to file a concurrent arbitration claim with FINRA at the same time the firm files a complaint or petition in state or federal court.
FINRA Dispute Resolution is unable to hear claims for injunctive relief, so the parties must go before an appropriate local court to determine whether any injunction will be issued. After the preliminary injunction hearing, the dispute shifts from the local court to a FINRA arbitration panel formed regarding the arbitration claim. The FINRA arbitration panel will then have the opportunity to hear the remainder of the case, and award any monetary damages or permanent injunctive relief, if warranted.
Gaddy Geiger & Brown is a trial firm offering a unique blend of energy, strategy and courtroom experience. To contact to a Kansas City business dispute lawyer, Kansas City white collar criminal defense attorney, or Kansas city appeals attorney visit http://www.ggbtrial.com.
