Georgia Federal Court Enjoins Enforcement of Covenant Not to Compete Against Former Employee

Peter S. Lubin, Patrick Austermuehle and James V. DiTommaso

In a dispute over the enforcement of two restrictive covenants in an employment contract, a federal court in Georgia granted a preliminary injunction preventing their enforcement. The plaintiff in Moorad v. Affordable Interior Systems, LLC filed a declaratory judgment action against his former employer to have the restrictive covenants declared unenforceable under Georgia law. The court considered the plaintiff’s request for an injunction and the defendant’s motion to dismiss for lack of subject matter jurisdiction, and ruled for the plaintiff on both.

The plaintiff, David Moorad, worked for the defendant, Affordable Interior Systems (AIS), from 2004 to May 2011 as the Vice President of Sales for Government Services Administration (GSA). Moorad’s employer asked him to sign an amended contract containing two restrictive covenants, a non-competition agreement and a non-solicitation agreement. According to the court’s ruling, the defendant implied that Moorad could lose his job if he refused to sign the new contract. The non-competition covenant stated that, upon termination or departure from AIS, Moorad could not work, for a period of twenty-four months, in office furniture sales or manufacturing. The clause explicitly described the geographic scope of the restriction as the entire United States. The non-solicitation clause purported to prohibit Moorad from soliciting any customers of AIS within the same twenty-four month period, including anyone who had been a customer in the prior twelve months.

The court’s opinion states that AIS began limiting Moorad’s work responsibilities in 2010 and 2011 to “send the message” that the company did not value him. Moorad was “constructively discharged” and left the company in May 2011. He accepted employment as Regional Sales Manager – GSA with a competing company several days later. AIS sought to enforce the restrictive covenants, and Moorad filed this lawsuit.

The court denied the defendant’s motion to dismiss for lack of subject matter jurisdiction. Moorad filed the case in federal court, claiming diversity jurisdiction. This requires that the plaintiffs and defendants be citizens of different states, and that the suit present an amount in controversy of more than $75,000. The defendants only challenged the amount in controversy element. Moorad presented evidence that his annual salary at his new job exceeded $75,000, and that enforcement of the covenant not to compete would prevent him from that and any similar employment for a two-year period. Because Moorad stood to lose as much as $150,000 in future compensation, the court found that he had met the requirements for diversity jurisdiction.

The court also granted Moorad’s request for a preliminary injunction. To prevail on such a motion, Moorad needed to show:
1. that his underlying case had a “substantial likelihood of success on the merits,”
2. that he faced irreparable harm without an injunction,
3. that such harm was greater than any harm to the defendant from the injunction, and
4. that an injunction would not harm the “public interest.”
The defendant dropped its demand that Moorad terminate his employment with the new company, so it argued that he could rely on a monetary damages claim for relief. The court was not persuaded by this argument, citing precedent holding that monetary remedies cannot compensate for missed employment opportunities. It agreed that Moorad had demonstrated “irreparable harm” and the other required elements, and therefore it granted the preliminary injunction.

At Lubin Austermuehle, our business litigation attorneys represent business owners and professionals in this and other claims throughout the Chicagoland area, Cook, DuPage, and Lake Counties, and in the Mid-West region including Indiana, Wisconsin and Iowa.