Federal TRO Practice – The Legitimate Interest, Near-Permanence and Balance of Harms Test: Cumulus v. Olson – Part II of III

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Cumulus Radio v. Olson, 2015 WL 643345 also discusses the legitimate business interest test, what constitutes an adequate remedy at law and the balance of harm elements of injunctive relief under Illinois law.

To determine whether a given restrictive covenant is reasonable, the court examines whether (1) the plaintiff has shown a legitimate business interest, (2) the restrictive covenant imposes an undue hardship on the employee; (3) the restriction injures the public, and (4) the time (how long?) and territory (how far?) limits of the restriction.  Illinois courts recognize that radio stations have a valid business interest in its customers given the highly competitive nature of broadcasting.  *7.

In assessing prong (1) – a legitimate business interest – the court considers whether a business has a “near permanent” relationship with its customers and advertisers who fund the broadcast by buying radio ads.  

The near-permanence inquiry distills to seven factors: (1) permanence of the relationship, (2) the amount of money invested to acquire clients, (3) the degree of difficulty in acquiring clients, (4) the extent of personal customer contacts by the employee, (5) the extent of the employer’s knowledge of its clients, (6) the duration of the customer’s activities with the employer; and (7) the intent to retain the employer-customer relationship.

The court examined these factors and found that the plaintiff radio station showed a near permanent relationship with its customers.  Illinois law recognizes that radio stations have a protectable interest in the near permanence of their customers as the plaintiff offered evidence that showed how time-consuming, expensive and arduous it is to cultivate clients.  

The plaintiff’s testimony that the radio industry is largely relationship-driven and that many of plaintiff’s clients were long-time customers also swayed the court.

The plaintiff also showed an inadequate remedy at law; meaning, money damages wouldn’t fix the defendant’s mon-compete breach.  Where a plaintiff can pinpoint specific lost accounts, money damages are the proper remedy; or “adequate.”  Here, though, plaintiff had difficulty identifying which contracts the plaintiff lost to the competing station.  This made it impossible to quantify plaintiff’s damages.

The closest call was the balance of harm element – the harm resulting from the injunction weighed against its benefit.  The harm here to the defendants was palpable and severe.  The sales executive was enjoined from working for the competing station in his chosen profession for a period of six months (from the entry of the injunction) and within a 60 mile radius.  He was also forbidden from soliciting any of plaintiff’s customers with whom he had contact for a 12 month period.  

The radio station defendant suffered harm, too.  It lost the benefit of a $250K/year salesman’s services for the duration of the non-compete term.

But the court found the benefit to the plaintiff outweighed the harm to the individual defendant.  It noted that if it denied plaintiff’s injunction request, the employment contract signed by the defendant would be meaningless and the plaintiff would face the prospect of untold lost clients due to the defendant’s clear breach of the non-compete provision.

Takeaways:

– The more time, effort and money a plaintiff can show goes into developing clients, the better his chances of showing near permanence and getting injunctive relief;

– money damages won’t properly compensate a plaintiff who can’t specify lost accounts flowing from a non-compete violation;

upholding the clear language of a contract can trump an employee’s right to earn a living if the violation is blatant and the restrictions are reasonable. 

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.