Are “Irreparable Harm” Clauses Enforceable? Recent Cases Illustrate Different Approaches

If an employee bound to enforceable restrictive covenants leaves for a competitor and starts poaching high-value customers, it’s usually much more important to stop the breach than wait to calculate damages from the fallout.

Companies in this unfortunate position can seek emergency assistance from courts, either through a temporary restraining order or a preliminary injunction.

This is difficult by design. Emergency injunctive relief is an “extraordinary” remedy. Movants not only have to prove their case has merit, but also demonstrate how they would be “irreparably harmed” without the court’s intervention.

Some restrictive covenant agreements include a provision in which the employee acknowledges and agrees their breach would cause “irreparable harm” to the company, justifying injunctive relief.

But do these “irreparable harm” clauses have any impact in court? Recent cases we covered in the Daily Rundown illustrate different approaches.

Approach 1: Enforce the Clause as Written

In Washington Trust Advisors, Inc. v. Arnold, No. 22-11847-PBS (D. Mass. Dec. 13, 2022), a financial advisory firm sued several former advisors who left and allegedly diverted investors worth hundreds of millions in assets to a competitor. Washington Trust filed a motion for a temporary restraining order and a preliminary injunction to enforce the advisors’ restrictive covenants.

Three of the advisors signed agreements acknowledging that their breach would cause Washington Trust “substantial and irrevocable damage that is difficult to measure.” These advisors likewise agreed to “waive the adequacy of a remedy at law as a defense to such relief.”

Noting that such “irreparable harm” clauses are generally enforceable in Massachusetts state and federal courts, the judge held the provisions were sufficient to establish irreparable harm with respect to these specific advisors. (The court even went as far as to say these clauses were Washington Trust’s “strongest argument” on irreparable harm.)

But one of the advisors did not have an “irreparable harm” clause in their agreement. With respect to this advisor, the court held Washington Trust had an adequate legal remedy precluding a finding of irreparable harm because the “financial services industry is uniquely skilled at computing the economic value of a given client.”

Thus, the absence of the “irreparable harm” clause proved dispositive in this case.

Approach 2: Treat the Clause as Evidence of Irreparable Harm

In Mountain Productions, Inc. v. Piccola, No. 3:22-CV-01588 (M.D. Penn. Nov. 23, 2022), a stage and theater rigging company (“Mountain Productions”) sued its former Vice President of Venue Installations (“Piccola”) for allegedly breaching his non-compete, customer non-solicitation, and employee non-solicitation provisions. Mountain Productions obtained a temporary restraining order against Piccola and moved for a preliminary injunction to enforce the restrictive covenants.

Piccola acknowledged in his agreement that his “failure to comply with the obligations of the Agreement will irreparably harm the Company and the Company’s remedies at law for [Piccola’s] breach of the obligations of this Agreement will be inadequate.”

Citing another Pennsylvania federal case, the court held Piccola’s “irreparable harm” clause was “not dispositive, but does constitute evidence of such harm.” The court held there was other evidence of irreparable harm justifying the preliminary injunction, such as the loss of employees and customers in whom Mountain Productions had invested time and resources.

On the other hand, in Marathon Equip. Co. v. Quinn, No. 1:22-CV-205-TAV-SKL (E.D. Tenn. Oct. 28, 2022), the court acknowledged an “irreparable harm” clause was evidence that the employer suffered irreparable harm, but that did not excuse the employer from needing to support its request with additional evidence beyond “fear and speculation.” The court held the employer did not demonstrate “irreparable harm,” despite the clause, because it failed to present evidence that it had been harmed in any way. 

Approach 3: Ignore the Clause

In Stockton Mortgage Corp. v. Bland, No. 3:22-cv-00036-GFVT (E.D. Ky. Dec. 21, 2022), a mortgage company (“Stockton”) sued two former employees for allegedly breaching their non-disclosure, employee non-solicitation, and customer non-solicitation covenants after leaving to join a competitor. Stockton sought a preliminary injunction to enforce their restrictive covenants.

Stockton argued the parties “contracted to presume irreparable injury in case of breach.” But the court refused to presume that irreparable injury would result from breach, regardless of what the parties agreed in their contract. The court cited a Michigan federal decision noting “numerous courts have held that such a contractual provision does not alter the court’s obligation to analyze whether the party seeking an injunction has proven irreparable harm.” 

Conclusion

My former practice group co-leader once described “irreparable harm” clauses like chicken soup—it may not save you, but it can’t hurt. That seems about right.