Enforcing Non-Compete Agreements in Arbitration in Texas

Originally published by Leiza Dolghih.

When it comes to enforcing non-compete agreements, companies usually want to stop the bleeding right away.  This is usually done by obtaining a temporary injunction in court, which preserves the status quo and prevents the departed employee from competing with the former employer while the parties sort out whether the agreement is enforceable against that employee, whether its restraints are reasonable, and what damage has been caused by the employee’s competition in violation of the non-compete agreement.

For those companies that have arbitration agreements with their employees, a noncompete violation will usually have to be arbitrated.  And while an arbitration may generally provide a faster, cheaper, and more confidential route for resolving a noncompete dispute than litigation, it can be an inferior process when it comes to obtaining a temporary injunction in a situation where time is of the essence.

While the relevant arbitration rules usually allow an arbitrator to grant a temporary injunction or enter some sort of preliminary relief, a company that wishes to obtain such relief must first select an arbitrator and then schedule a hearing.  These steps can result in a loss of precious time – days or weeks during which the departed employee has the time to ramp up the competition, destroy relevant evidence and cover his tracks.  In contrast, the same company may obtain a temporary restraining order in court the same day it files a suit to enforce the non-compete agreement.

For that reason, every arbitration agreement should have a carve out for injunctive relief – the clause that allows a company to obtain a temporary restraining order as soon as it learns of a violation of the non-compete agreement.  Once the company has the court order in hand, it may safely proceed with an arbitration and take its time to investigate the violation and lay out its case. 

In deciding whether to arbitrate a non-compete dispute, seek a temporary restraining order from a court, or both, companies should consider the following  issues:

1. Does the company arbitration agreement have the necessary language to allow the company to obtain a temporary relief in court?
2. Will the company be waiving the arbitration clause by obtaining emergency relief in court? Hint: A recent case from the Houston Court of Appeals held that seeking injunctive relief in court does not waive an arbitration clause if its purpose is to simply preserve the status quo.  See Fisher v. Carlile, et al.
3. Should the company file a claim of arbitration first and then seek an injunction in court or vice versa?

Leiza litigates non-compete and trade secrets lawsuits in a variety of industries in federal and state courts. If you are a party to a dispute involving a noncompete agreement or misappropriation of trade secrets, contact Leiza at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108. 

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.

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