TADC Employment Law Newsletter Spring 2014

Ed Perkins, Editor

Nicolas A. Gavrizi, Assistant Editor

Sheehy, Ware & Pappas, P.C. – Houston

obtaining a temporary injunction that will stand on appeal.

It is commonplace for practitioners to apply for a temporary injunction on behalf of an employer to enjoin a former employee from continuing to violate a non-compete.

However, practitioners may fail to appreciate the many pitfalls and challenges associated with not only obtaining a temporary injunction, but also obtaining one that will withstand an appeal. Several recent Texas appellate court opinions have analyzed the requirements for issuance of a valid temporary injunction to enforce a non-compete agreement. As these opinions make clear, obtaining a temporary injunction from the trial court is seldom the end of the story. As such, in applying for a temporary injunction, practitioners must ensure the application and the Court’s order granting the same satisfy certain criteria. If they do not, the temporary injunction is at risk of at the appellate level.

  1. A. The standard of review on appeal.

Appellate courts review a trial court’s order for a temporary injunction under an abuse of discretion standard. Davis v. Huey, 571 S.W.2d 859, 861–62 (Tex.1978). Under this standard, a trial court abuses its discretion only if it reaches a decision so arbitrary and unreasonable that it amounts to a clear and prejudicial error of law or if it clearly fails to correctly analyze or apply the law. Intercontinental Terminals Co. v. Vopak N. Am., Inc., 354 S.W.3d 887, 892 (Tex.2011).

Though not required, a trial court may issue findings of fact and conclusions of law in conjunction with an interlocutory order. Dickerson v. Acadian Cypress & Hardwoods, Inc., 09-13-00299-CV, 2014 WL 1400659 at *2 (Tex. App.—Beaumont Apr. 10, 2014, no. pet. h.). If the trial court issues such findings, an appellate court may consider such findings in analyzing whether the trial court abused its discretion even though the trial court was not required to make such findings. Id. If a trial court did not make such findings of fact or conclusions of law, the trial court’s determination of whether to grant or deny a temporary injunction must be upheld on any legal theory supported by the record. EMS USA, Inc. v. Shary, 309 S.W.3d 653, 657 (Tex.App.-Houston [14th Dist.] 2010, no pet.).

Finally, evidence from a temporary injunction hearing is viewed on appeal in the light most favorable to the trial court’s order; every reasonable inference from the evidence introduced at the temporary injunction hearing is indulged in the light that favors the trial court’s ruling. See Davis S.W.2d at 861–62 (Tex.1978).

While this standard of review is generous, a temporary injunction is nevertheless “an extraordinary remedy.” Butnaru v. Ford Motor Co., 84 S.W.3d 198, 204 (Tex.2002). Thus, as the following discussion shows, appellate courts require an applicant to have presented certain pleadings and proof at the trial court level to uphold a temporary injunction. Even then, a temporary injunction may still be dissolved if the Court’s order granting it did not comply with Tex. R. Civ. P. 683.

  1. B. What an Applicant must plead and prove to obtain a valid temporary injunction.

It is well settled that to obtain a temporary injunction, an applicant must plead and prove: (1) a cause of action against the defendant; (2) a probable right to the relief sought; and (3) a probable, imminent, and irreparable injury in the interim.[1] Tranter, Inc. v. Liss, 02-13-00167-CV, 2014 WL 1257278 at *2 (Tex. App.—Fort Worth Mar. 27, 2014, no. pet. h.); Dickerson, 2014 WL 1400659 at *3.

  1. 1. Pleading a “cause of action against the defendant.”

This requirement is fairly straightforward. In the context of non-competes involving employment, to satisfy this requirement the applicant merely must plead a cause of action alleging the non-compete at issue was breached. See Tranter 2014 WL 1257278 at *2 (finding that conspiracy, fraud, and negligent misrepresentation causes of action were irrelevant to any injunction proceeding).

  1. 2. Pleading and proving a probable right to the relief sought.

This requirement is more complicated. “The phrase ‘probable right of recovery’ is a term of art in the injunction context.” Intercontinental Terminals Co., LLC v. Vopak N. Am., Inc., 354 S.W.3d 887, 897 (Tex. App.—Houston [1st Dist.] 2011, no pet.). To show a probable right to recover, an applicant need not show that it will prevail at trial nor does a finding of probable right of recovery indicate a trial court’s evaluation of the probability the applicant will prevail at trial. Id. Instead, to show a probable right to recovery, the applicant must plead a cause of action and present some evidence that tends to sustain it. Id.; see also 183/620 Group Joint Venture v. SPF Joint Venture, 765 S.W.2d 901, 904 (Tex. App.—Austin 1989, writ dism’d w.o.j.)(the evidence must be sufficient to raise “a bona fide issue [ ] as to [the applicant’s] right to ultimate relief.”). This requirement is intended to protect opposing parties from the inherent interference of temporary injunctions when it appears unlikely that the applicant ultimately will not prevail in the lawsuit. LasikPlus of Texas, P.C. v. Mattioli, 418 S.W.3d 210, 218 (Tex. App.—Houston [14th Dist.] 2013, no pet.).

In the specific context of non-competes involving employment, pleading and proving a “probably right to the relief sought” requires an applicant to present evidence amounting to a “substantial likelihood” that a non-compete is enforceable.[2] See Tranter 2014 WL 1257278 at *3.

In turn, to prove a non-compete is likely to be enforceable, the applicant seeking temporary injunction must present evidence the non-compete is (1) ancillary to or part of an otherwise enforceable agreement and (2) contains reasonable limitations as to time, geographic area, and scope of activity that do not impose a greater restraint than necessary to protect the employer legitimate interests and goodwill. Id.

If either of these requirements are not met, the applicant will be deemed not to have shown a probable right to recovery and the temporary injunction will be dissolved. Id. at *5.[3]

  1. i. Ancillary to or part of an otherwise enforceable agreement.

The Supreme Court has stated that in an employment context, a non-compete is ancillary to or part of an otherwise enforceable agreement if the employer gives non-illusory consideration in exchange for the employee’s promise not to compete. See Light v. Centel Cellular Co., 883 S.W.2d 642, 645 (Tex.1994), overruled on other grounds by Marsh USA Inc. v. Cook, 354 S.W.3d 764, 772 (Tex.2011).

Confidential or proprietary information suffices as such non-illusory consideration. See Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 649 (Tex.2006). Thus, if an employer discloses confidential information[4] to an employee in exchange for the employee’s promise to keep that information confidential, the consideration requirement is satisfied. See Tranter 2014 WL 1257278 at *5; Dickerson, 2014 WL 1400659 at *4.

This is true even for unilateral contracts (formed when one of the promises was illusory). The “otherwise enforceable agreement” requirement requires the non-compete be “part of an agreement that contained mutual non-illusory promises.” See Marsh USA Inc. v. Cook, 354 S.W.3d 764, 773 (Tex. 2011). However, even a unilateral agreement will be considered to contain mutual non-illusory promises as long as the employee expressly promised to keep information confidential and used the employer’s confidential information during their employment. See Tranter, 2014 WL 1257278 at *4. In such a case, courts treat the employer’s promise to provide the employee with confidential information as being implied. Id. This is true regardless of any other express promises the employer made to the employee regarding consideration (i.e. salary/wages, continued employment, etc.). Id. at *3-4.

Thus, as long as an applicant shows the employee expressly promised to keep information confidential and used confidential information disclosed by the employer during their employment, an employer’s promise to give the employee confidential information is implied, non-illusory, and the non-compete will be deemed “ancillary to or part of an otherwise enforceable agreement” for purposes of upholding a temporary injunction. Id. at *4-5.

  1. ii. Reasonable limitations as to time, geographical area, and scope.

The burden to satisfy this requirement is less clear and more case specific. To be reasonable, a covenant restricting an activity of an employee must be shown as having some bearing on the activities of the employer. See Tex. Bus. & Com. Code Ann. § 15.50(a); Peat Marwick Main & Co. v. Haass, 818 S.W.2d 381, 387 (Tex. 1991). Specifically, a restriction prohibiting competition for a certain amount of time, in a certain geographical area, and/or in a certain type of activity must not impose a greater restraint than is necessary to protect the goodwill or other legitimate business interests of the employer. See id.

At the temporary injunction hearing, the applicant bears the burden of showing that the restrictions of a non-compete are reasonably necessary to protect its goodwill or business interests. See id. § 15.51(b). Thus, if a party seeking to enforce a non-compete fails to offer such evidence at the temporary hearing, an appellate court can hold the trial court abused its discretion by finding there was a probable right to recovery on a breach of a non-compete. See Hodgson v. U.S. Money Reserve, Inc., 09-13-00074-CV, 2013 WL 2732736 at *3-4(Tex. App.—Beaumont June 13, 2013, no pet.)

Unfortunately, practitioners are somewhat at the mercy of the courts as to when such restrictions will be considered “reasonable.” Courts determine this on a case by case basis. See Tranter, 2014 WL 1257278 at *5 (finding a non-compete clause that did not contain a reasonable geographic restriction at all was unreasonable, unenforceable as written, and therefore “the applicant had failed to show a probable right to recover[.]”).

Nevertheless, Hodgson shows that at the very least, applicants must include an argument the non-compete’s restrictions are reasonable and present supporting evidence when requesting a temporary injunction from a trial court.

  1. 3. Pleading and proving probable, imminent, and irreparable injury.

An injury qualifies as “probable and imminent” if it is likely to occur or if the harm was “actual and ongoing” at the time the temporary injunction was entered. See Dickerson, 2014 WL 1400659 at *5; Correa v. Houston Surgical Assistant Services, Inc., 14-12-01050-CV, 2013 WL 3958499 (Tex. App.—Houston [14th Dist.] July 30, 2013, no pet.) (“there is no abuse of discretion in granting a temporary injunction when the enjoined conduct threatens to disrupt an ongoing business”); see e.g. Hodgson, 2013 WL 2732736 at *4. Furthermore, “[a]n injury is irreparable if the injured party cannot be adequately compensated in damages or if the damages cannot be measured by any certain pecuniary standard.” Butnaru, 84 S.W.3d at 204.

Thus, an applicant for a temporary injunction must establish that the harm complained of is both ongoing or reasonably likely to occur and that there is “no adequate remedy at law for damages.” Sharma v. Vinmar Intern., Ltd., 231 S.W.3d 405, 427(Tex. App.—Houston [14th Dist.] 2007, no pet.).

What constitutes as “irreparable” damages is sometimes difficult to determine. Nevertheless, Courts have generally found that damages inherently difficult to quantify count as irreparable damages. Dickerson, 2014 WL 1400659 at *5. Courts have liberally applied this standard; finding several types of damages arguably capable of being measured to nevertheless qualify as “irreparable.”[5]

  1. C. What a Court’s order granting a temporary injunction must include.

In addition to the applicant being required to make certain pleadings and proof to the trial court, the order granting a temporary injunction itself must meet certain requirements for the injunction to be upheld on appeal.

Namely, the trial court’s order granting a temporary injunction must satisfy all the requirements found in Texas Rules of Civil Procedure 683. The order must “set forth the reasons for its issuance; shall be specific in terms; shall describe in reasonable detail and not by reference to the complaint or other document, the act or acts sought to be restrained [.]” Tex. R. Civ. P. 683. Rule 683 also requires the trial court to “include an order setting the cause for trial on the merits[.]” Id. Finally, Rule 683 requires the trial court order a sufficient bond when granting the temporary injunction. Id.

While some of Rule 683’s requirements may seem trivial, Courts have held that “[t]hese procedural requirements are mandatory, and an order granting a temporary injunction that does not meet them is subject to being declared void and dissolved.” Conlin v. Haun, 419 S.W.3d 682, 686 (Tex. App.—Houston [1st Dist.] 2013, no pet.)(citing Qwest Communications Corp. v. AT & T Corp., 24 S.W.3d 334, 337 (Tex. 2000)).[6] For example, the following types of orders granting a temporary injunction have been described as noncompliant with Rule 683:

1) Orders containing no time and geographical limitations as to the acts intended to be restrained. See Dickerson, 2014 WL 1400659 at *7;

2) Orders not specifically identifying the individuals or entities an employee is prohibited from contacting. Id.;

3) Orders with only a vague description of the type of actions an employee is prohibited from participating in. Id.

Thus, Rule 683 can present another barrier to enforcing temporary injunctions. When submitting proposed orders with an application for temporary injunction, practitioners should review Rule 683’s requirements to ensure any order entered by the Court granting the temporary injunction will be fully compliant with Rule 683.

  1. D. Conclusion

Practitioners must be cognizant of the requirements for a temporary injunction to be upheld on appeal. In respect to non-competes in the employment context, to ensure a temporary injunction will be upheld on appeal, practitioners should include an application for a temporary injunction 1) a cause of action alleging the non-compete has been breached; 2) a showing the employee promised not to disclose confidential information yet used confidential information distributed by the employer during their employment; 3) a showing the limitations of the non-compete do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the employer; and 4) a showing the injury to the employer is difficult to quantify and either likely to occur or actual and ongoing. Finally, Practitioners must be aware that all orders granting temporary injunctions need to comply with Rule 683.




[1] While the Covenants Not to Compete Act preempts the “probable, imminent, and irreparable injury” requirement for permanent injunctive relief, it does not preempt this requirement for temporary injunctive relief. Cardinal Health Staffing Network, Inc. v. Bowen, 106 S.W.3d 230, 238 (Tex. App.—Houston [1st Dist.] 2003, no pet.)(“Because section 15.51(a) does not govern preliminary relief, it does not preempt the law that generally applies to preliminary relief, including the equitable rules that apply to temporary injunctions.”).

[2] At both the trial and appellate level, neither court determines the underlying merits of the controversy (if the non-compete at issue is actually enforceable) when determining whether temporary injunction is appropriate. See EMS USA, Inc. v. Shary, 309 S.W.3d 653, 658 (Tex. App.-Houston [14th Dist.] 2010, no pet.).

[3] It should also be noted that an Appellate Court recently held that in a suit to enforce a non-compete, the defendant’s current employer was a necessary party without whose presence the temporary injunction was unauthorized and unenforceable. See generally Down Time-S. Texas, LLC v. Elps, 13-13-00495-CV, 2014 WL 1464320 (Tex. App.—Corpus Christi Mar. 20, 2014, no. pet. h.).

[4] Courts have found several types of information to be “confidential” for purposes of serving as consideration. See Dickerson, 2014 WL 1400659 at *5 (finding customer lists containing contact information, sales histories, sales reports, and pricing information was confidential information); Correa v. Houston Surgical Assistant Services, Inc., 14-12-01050-CV, 2013 WL 3958499 at *7 (Tex. App.—Houston [14th Dist.] July 30, 2013, no pet.) (finding data compilations of customer preferences to qualify as confidential information even though such information was readily available to others); Rugen v. Interactive Bus. Sys., Inc., 864 S.W.2d 548, 551–52 (Tex. App.-Dallas 1993, no writ) (finding pricing information was confidential information).

[5] See Dickerson, 2014 WL 1400659 at *5 (finding an employee’s sales to an employer’s existing clients to qualify as irreparable damages because they “represent an interruption of relationship with clients that are difficult if not impossible to fully measure.”); Correa v. Houston Surgical Assistant Services, Inc., 14-12-01050-CV, 2013 WL 3958499 at *11(Tex. App.—Houston [14th Dist.] July 30, 2013, no pet.) (finding that because the extent of the damage was not yet known at the time of the injunction, the damage was irreparable); Intercontinental Terminals Co., LLC v. Vopak N. Am., Inc., 354 S.W.3d 887, 895 (Tex. App.—Houston [1st Dist.] 2011, no pet.) (finding an employer’s loss of goodwill and reputation in the marketplace qualified as irreparable).

[6] This is true even if both parties agreed to the temporary injunction. See Conlin 419 S.W.3d at 687.

Author: Ed Perkins
Phone: 713-951-1000
Fax: 713-951-1199