A non-compete banning a former cloud-computing strategist with Latin American expertise from competition was upheld in New York this year. The executive’s former employer which shared trade secrets with him, convinced federal trial and appellate courts that it was likely to succeed on the merits, that it was more likely to suffer irreparable injury than the executive, that it was more likely to incur hardships, and that no public disservice would result from the issuance of an injunction to enforce the non-compete. 

The case is IBM v. Kede de Freitas Lima, No. 20-3039-cv (2nd Cir. Jan. 22, 2021). The summary order is unpublished although that does not negate from the significance of the matter. Preliminary injunctions are extraordinary remedies. A party must show that it is likely to succeed on the merits. Essentially that it will win at trial. And the court determines whether it appears that the movant has sufficient evidence to support winning. New York’s Southern District Court found that IBM met its burden and the Court of Appeals for the Second Circuit agreed.

Preliminary injunctions undergo a four-part analysis as follows:

  1. Likelihood that a plaintiff will succeed on the merits.
  2. Showing by the plaintiff that it will suffer irreparable harm unless an injunction is granted.
  3. When the hardships of the plaintiff are weighed against the hardships to a former employee, the scales tip in favor of the employer versus employee.
  4. That the public interest will not be disserved if an injunction is issued which might be analogous to stopping a highly skilled professional from providing vital services to a community with few or no other choices.

Apparently, at the time that Microsoft hired this executive he had not been tapped to oversee the expansion into the Latin American market. He was already on Microsoft’s payroll so the courts presumed that little harm would result to preventing an executive from being promoted into a position where the executive’s trade secret knowledge would almost certainly be compromised at the expense of his former employer.

The facts of these cases are specific and usually narrowly applicable. Non-competes which impair lower paid workers from competing are a far cry from ones such as in this case where a very highly paid executive is being detained or prevented from promotion until his non-compete period expires. Of course trade secrets will remain trade secrets indefinitely. But the thought process is that by delaying the promotion the insider or confidential information will grow less relevant or damaging to the former employer with time.

Non-competes should probably be limited to high level executives and professionals. A blanket prohibition might result in restrained rather than enhanced competition in the labor markets. And most courts have recently encouraged private contracts between parties. When well-drafted, they can keep parties out of courtrooms. 

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