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Court Grants Employer a Temporary Injunction in Non-Compete Agreement Dispute Despite Arbitration Clause

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On May 3, 2011, the federal district court of Minnesota in RSM McGladrey v. Peter Epp, et al., reaffirmed the notion that a court may issue a temporary injunction in a non-compete agreement dispute even if the agreement contains an arbitration clause.

RSM McGladrey (“RSM”), a nation-wide provider of tax services, sought a temporary injunction prohibiting certain former employees from allegedly breaching their non-compete agreements.  The agreements all contained arbitration clauses, but RSM asked the federal court for a temporary injunction pending the outcome of arbitration.

The court noted that, “…a preliminary injunction may be granted in a case subject to arbitration only where ‘the contract terms contemplate such relief and it can be granted without addressing the merits.’”  In RSM Gladrey, the court found that, “a preliminary injunction is appropriate” because “[T]he parties clearly intended that injunctive relief be available pending the resolution of arbitration.”  Specifically, the agreements stated, “claims for alleged violations of…[the non-compete covenants]…may be brought immediately in court, without having to first file a mediation or arbitration, for the purpose of obtaining preliminary injunctive relief…”

The court compared this language to language from another case where injunctive relief was denied.  That agreement stated that, “the agreement to arbitrate is without prejudice to the right of a party…to request interim relief directly from any court … of competent jurisdiction…”  The court distinguished between the two by noting that the contract language in Manion “merely authorized a party to request relief, as opposed to being entitled to relief…”  The concern was that requesting relief would improperly involve the court in the merits of the dispute.

Despite the similar contract language, the court obviously preferred language “entitling” a party to injunctive relief rather than language merely allowing a party to “request” an injunction.

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