Proposed Rule Specifying Preliminary Injunction Standard Will Impact Employers Seeking to Enforce Restrictive Covenants 

05.11.2023

When an employee leaves to join a competitor in violation of a restrictive covenant or takes trade secret information on the way out the door, a company may have no choice but to seek a preliminary injunction in court. In Virginia state courts, however, the standard for obtaining such an injunction has been unclear. That will soon change if a new proposed rule is adopted.

As Virginia litigators are well aware, the Virginia Supreme Court has never articulated a precise standard for awarding a temporary injunction. As a result, litigants and judges have often looked to federal case law for guidance. In Winter v. NRDC, Inc., 555 U.S. 7, 20 (2008), the United States Supreme Court set forth four elements that a movant must establish to obtain a preliminary injunction: (1) that the moving party is likely to succeed on the merits; (2) that the moving party is likely to suffer irreparable harm in the absence of preliminary relief; (3) that the balance of the equities tips in the moving party’s favor; and (4) that the injunction is in the public interest.

Before the Supreme Court’s decision in Winter, the standard articulated in Blackwelder Furniture Co. of Statesville v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir. 1977) governed the granting or denial of preliminary injunctions in the Fourth Circuit, which encompasses Virginia and a number of surrounding states. In Blackwelder, the Fourth Circuit adopted a balance-of-hardship test, with the first step being to balance the likelihood of irreparable harm to the movant against the likelihood of harm to the defendant. If the balance tipped in favor of the movant, then the movant did not have to prove that it would likely succeed on the merits. Instead, the court would determine whether the movant “raised questions going to the merits so serious, substantial, difficult and doubtful, as to make them fair ground for litigation and thus for more deliberate investigation.” The United States Supreme Court later held in Winter that the Blackwelder standard was too lenient, and instead required that all four factors be independently satisfied.

Because of the tension between the Blackwelder standard and the Winter decision, the Fourth Circuit no longer applies the balance-of-hardship test when granting or denying preliminary injunctions. Instead, the four-part Winter standard controls. Real Truth About Obama, Inc. v. FEC, 575 F.3d 342, 347 (4th Cir. 2009), vacated in part on other grounds, 559 U.S. 1089, reinstated in relevant part, 607 F.3d 355 (4th Cir. 2010). Virginia courts have applied this same four-part test in their analyses; however, some courts and commentators have suggested different standards.

In an effort to clarify the standard that Virginia trial courts should apply when evaluating a motion for a preliminary injunction, the Advisory Committee on Rules of Court in Virginia has proposed Rule 3:26, which specifies the standard for granting preliminary injunctions. The proposed Rule 3:26 is a modified Blackwelder standard, in that the movant must first show that it more likely than not will suffer irreparable harm without the preliminary injunction, and only then will the court balance the hardships. Significantly, the proposed Rule 3:26 states that “[i]f the balance of hardships tilts decidedly in the movant’s favor, the movant need not prove that it is likely to succeed on the merits if the movant has raised serious questions going to the merits that are sufficient to make them fair ground for litigation and for more deliberate investigation.”

The Advisory Committee provides three alternatives to the proposed rule, one of which is the more demanding Winter/Real Truth standard that requires the movant to show that all four factors support a preliminary injunction. The proposed Rule 3:26, and all three alternatives, include a threshold requirement that the movant show by more than a 50% probability (i.e., “more likely than not”) that it will suffer irreparable harm without a preliminary injunction.

Employers seeking to enjoin former employees who have breached their restrictive covenants will want to pay close attention to this debate over the language of Rule 3:26. A return to a modified Blackwelder standard requiring only that the movant raise “serious questions going to the merits” (as opposed to proving likelihood of success on the merits) would be an easier standard to meet than a Winter/Real Truth rule requiring that the movant not only prove each of the four factors, but also demonstrate a likelihood of success and a likelihood of irreparable harm by more than a 50% probability.

Comments on the proposed Rule 3:26 are due on or before August 1, 2023. The Hirschler employment law team will continue to monitor the proposed rule and any changes resulting from the comments solicited by the Advisory Committee.